What to Expect When Applying for a Bad Credit Mortgage

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Knowing what to expect when you apply for your bad credit mortgage can help make the process easier. Following this process should help smooth the way to homeownership.

The Bad Credit Home Loan Process

Applying for a bad credit mortgage and buying a home requires a number of steps. You don't necessarily have to go in the order outlined here, this is just a guide:
  • Apply for your bad credit mortgage. Before you start shopping for a home, apply for your bad credit home loan. This way you know exactly how much home you can afford.
  • Credit approval. Your mortgage lenders will evaluate your credit report to see if they can approve you for a loan program. Expect to answer a lot of questions about your finances and bad credit history.
  • Pre-approval. Once you've been approved for a bad credit home loan you'll know exactly how much you can afford and what your monthly mortgage payments will be. It's a good idea to know what your "ceiling"--the max you're approved for, but don't necessarily shoot for the most expensive home you qualify for. Keep your budget and comfort zone in mind.
  • Make an offer. You've found a home you want, so you make an offer and negotiate the terms. Make sure to work with an experienced real estate agent to represent your interests in this process.
  • Application approval. Once you have an accepted offer on the home, you finalize your bad credit mortgage application and go into escrow. Make sure to go over the Truth in Lending (TIL) disclosure with your mortgage lender so that you understand what the closing costs will be.
  • Escrow. This is the stage where inspections are done, where the title is researched, and where ownership starts to change hands. It can take as little as 30 days, but often takes longer.
  • Closing. Escrow is complete and the home is almost yours. This is where you'll have to pay the closing costs on your bad credit mortgage. Make sure you know what these will be well in advance. Once closing is done you're a new homeowner!

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