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Need a Bad Credit Mortgage? Prepare to Meet the Four C's

By Barbara Marquand
Mortgage Credit Problems Columnist


With the reams of paperwork to review and multiple documents to submit, getting a bad credit mortgage might seem complicated. But the lender's decision-making process is actually pretty simple.

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Plan how to meet the four C's of credit to improve your chances of qualifying:

  • Cash
  • The days of 100 percent mortgage financing are over, at least in this tightened credit market, so you need cash upfront to get a mortgage. FHA loans still feature the most liberal down payment requirements--just 3.5% of the purchase price. If your credit score falls below 580, FHA requires 10% down, but lenders' standards are higher than those set by the Federal Housing Administration, making it unlikely you'll qualify if your credit score is under 600. The more cash you can put toward a down payment the better. A higher down payment lowers your monthly mortgage payments and increases your chances of approval.

  • Collateral
  • The house you buy serves as collateral in case you default on the loan. A home appraisal is required to verify the property's value and make sure it's in acceptable condition.

    Bad Credit Mortgage: Correct Credit Report Mistakes Before You Apply

  • Character
  • How well have you paid previous debts? Bad credit lenders review your credit history to determine whether you're worth the lending risk. Check your credit reports through AnnualCreditReport.com and follow credit bureau instructions to correct any factual errors. Pay your bills on time, catch up on any overdue accounts and pay down debts to improve your credit score and increase your chances of getting a mortgage at a decent rate.

  • Capacity
  • Lenders evaluate your income, employment stability, and financial resources to determine your ability to repay the loan. A spotty employment history, even if you have a decent salary now, hurts you. Lenders like to see at least two years with the same employer or in the same field. Prepare to jump through more hoops to prove your capacity if you're self-employed.

Preparing for the mortgage application process increases your chance of approval. Evaluate yourself according to the four C's of credit and plan how to strengthen your weak points. Enter your information on this page to get up to four free quotes for poor credit home loans.

Sources

http://www.nfcc.org/

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