Home Loans for Bad Credit: 5 Things to Do to Increase Changes of Qualifying

By Barbara Marquand
Mortgage Credit Problems Columnist

If you're thinking about getting a mortgage in the next several months, start preparing now to increase your chances of success, especially if you have less-than-perfect credit.

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Home loans for bad credit are harder to come by in today's market, so you'll need to be diligent about doing your homework.

1. FHA Loan and Bad Credit Mortgage: Save More For Down Payment

Unless you're a veteran and can qualify for a VA loan, your best bet for a mortgage if you have less-than-perfect credit is with an FHA loan, which is insured by the Federal Housing Administration. FHA loans require a 3.5% down payment, but you'll have to put down 10% starting this summer if your FICO credit score falls below 580. Other FHA loan changes may be on the way, so save as much as you can. In general, the more you save for a down payment, the greater cushion you'll have once you own the home -- a plus for winning over lenders.

2. Get Debt Relief: Pay Down Your Credit Cards

Part of your credit score depends on your credit usage ratio -- your debt compared to the amount of credit you have. Maxed-out credit cards hurt your score, so pay down balances as much as you can.

3. Know Where You Stand with Bad Credit Lenders: Learn Your Credit Score

You can get free copies of your credit reports once a year from each of the three major U.S. credit reporting companies through AnnualCreditReport.com, but you'll have to pay a small fee to get your FICO score. Getting your score will let you know where you stand. Meanwhile, check your credit reports, and follow the credit bureaus' directions for fixing any errors you find.

4. Streamline the Bad Credit Mortgage Application Process

Organize all the paperwork you'll need. To show proof of income, gather recent pay stubs, tax returns, and W-2 forms, most recent account statements showing dividend and interest income, and documentation showing any other income, such as alimony or child support payments. In addition, collect the most recent statements for bank accounts, retirement and other investment accounts, and the account numbers and balances for loans, including credit cards.

5. Shop Around for the Best Loans

Consult with competing lenders, and don't jump at the first offer or get discouraged if you get turned down by the first lender. You might qualify with another another institution or get offered a better rate elsewhere. Enter your information on this page to qualify for up to four free mortgage quotes.


http://www.myfico.com/ / http://www.homeloanlearningcenter.com/ / http://portal.hud.gov/

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