Subprime lending, which means approving home loans with bad credit, has been blamed by some people for causing the housing crisis. While that's not the only reason home values dropped and foreclosures rose, bad credit loans are a thing of the past for many lenders. Before you give up on your dream of buying a home, though, you need to do some homework and consult with a lender to find out whether you can qualify now for a poor-credit mortgage. Complete the form on this page to find a lender.
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While a lender will also check your credit, you should check your credit report and score first so you know where you stand. Your credit score fluctuates monthly and depends on a variety of factors, such as, making payments on time; the amount of debt you have compared to your available credit; the variety of credit you have, such as, revolving debt or an installment loan; and how long you've had credit. Negative information fades over time; so if you had credit problems in the past, your score may be better than you think. A lender can help you develop a credit-repair plan if your credit isn't good enough to qualify for a loan now.
Improve your compensating factors
If you're considered a high risk by a lender because of your credit problems, you may still qualify for a mortgage if you have qualities that offset your bad credit. For example, a lender may see you as less risky if you're applying for a loan with payments you can easily afford. Typically, lenders will allow a maximum debt-to-income ratio (your monthly minimum payments on all recurring debt compared to your monthly gross income) of 41 percent. If you've paid down your debt or increased your income so that your debt-to-income ratio would be 30 percent, you're less of a risk to a bad credit mortgage lender.
Another compensating factor could be that you've been in your job a long time and can, therefore, demonstrate a solid income history -- or perhaps you've been able to save a lot of money now that your financial problems are behind you. If you have the cash, consider making a bigger down payment of at least 20 percent or even 25 or 30 percent. Not only will that reduce the size of your monthly payments, but it will also lower your debt-to-income ratio.
If you complete the form on this page, you can find a lender who can help you determine if you're able to qualify for a loan now or must wait until you can complete your credit-repair plan.