Bad Credit Mortgage Loans and Your Down Payment

By Karen Lawson
Mortgage Credit Problems Columnist

You have bad credit and want to buy a home. It can be tempting to jump in with a minimum down payment but this can lead to more financial problems. Here are some ways of funding a larger down payment.

Bad Credit Mortgage Loans: A Risky Proposition for Lenders
Mortgage lenders rely on credit scoring and credit reports to assess the risk of approving your home loan. Bad credit home loans may be available, but the lower your down payment, the harder they are to get--and the more expensive they will be.

Your Next Home Loan: Finding Down Payment Funds:
If you have bad credit and want to buy a home, saving up a down payment is essential. A larger down payment makes you a less risky borrower and a likelier candidate for a loan. Here are some ideas for funding a down payment:

• Direct deposit savings: If your employer offers direct deposit of your pay, arrange to have a specified amount directly deposited to a savings account. Do not get a debt card with this account--make it as hard as possible to tap it for impulse spending! Direct deposits can help you avoid spending your money before it's deposited to savings.
• Community Home buyer Programs: Local governments may offer community home buyer programs for first time or disadvantaged buyers. These programs typically provide a loan that covers most of your closing costs.You won't have to repay the loan until you sell or move out of your home. Availability and exact terms of these programs vary.
• Borrowing From (or Withdrawing) Retirement Savings: Some retirement plans allow borrowing against retirement savings or taking a penalty-free withdrawals for purchasing a home. Contact your retirement plan administrator or financial advisor for details.

Using these sources for your down payment can help you get a bad credit home loan.

 

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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