Bad Credit: Five Suggestions for Getting a Mortgage

By Gabriel Traverso
Mortgage Credit Problems Columnist

Many potential homebuyers with bad credit worry that their poor credit history will prevent them from getting a home loan. Recent problems in the sub-prime mortgage market have curtailed some types of bad credit lending, however, a careful shopper has a decent chance of finding a mortgage program for which he or she qualifies.

Qualifying For a Bad Credit Home Loan

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Getting into your new home doesn't have to be a source of worry simply because you have bad credit. There are a number of lenders who specialize in bad credit home loans and can possibly help you get into the home you want. Here are a few tips that can help you qualify for a home loan:

  1. Clean up your credit report. There are many homebuyers who find inaccurate information listed on their credit reports--inaccuracies that hurt their chance for a loan.
  2. Pay off your debts. Pay down your credit accounts, but don't pay them all the way off. Try and get the balance to 30% or so of your limit.
  3. Raise credit lines. If you can achieve this it can improve the picture you present to potential lenders.
  4. Prepare letters of explanation. Write a letter that explains to potential lenders what happened to hurt your credit. Lenders might still qualify you if the reasons for your credit trouble were due to loss of a job or a medical emergency, but they'll usually want the whole picture up front. This same explanation can also be added to your credit report if you contact the three bureaus.
  5. Put money in the bank. If you can keep reserves in your bank account for a few months before applying for your home loan it can help you qualify.

What Not To Do

There are a few things you want to avoid, too, in order to qualify for a bad credit home loan. Don't open any new accounts and don't max out the accounts you have. This will hurt your debt-to-income ratio. Lastly, don't change jobs or switch careers. Lenders want to see that you are stable borrower and this kind of change tends to turn them off.

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