Home buyer classes: How to educate yourself on financing and ownership

By Michele Lerner
Mortgage Credit Problems Columnist

Most potential borrowers these days are aware that lenders have tightened their requirements for credit approvals. While bad credit loans are available, consumers who need these loans should expect to pay a higher interest rate than today's best mortgage rates and higher fees -- and be prepared to come with a larger down payment. Zero-down payment loans, particularly for borrowers who need a poor credit mortgage, are rarely available. If you have less-than-perfect credit, you can complete the form on this page to see if you qualify for a bad credit mortgage.

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In addition to gathering information from bad credit mortgage lenders about your loan options, you should also take the time to evaluate your personal finances, the reasons for your credit problems and whether you are emotionally and financially ready to become a homeowner.

Financial readiness for a mortgage

In order to approve your mortgage application, lenders will look at your income and assets, your credit score, your debt-to-income ratio, and the availability of your savings for a down payment, closing costs and cash reserves.

If you have been working to overcome past debt problems but still have a low credit score, you may still qualify for a home loan as long as you have reduced your debt or increased your income and have been consistently paying your bills on time in recent months.

Avoiding predatory lenders

Prospective buyers with credit problems may be easily swayed by the promises of a predatory lender, an unscrupulous lender who may mislead the borrowers into spending more than necessary to qualify for a mortgage.

The best way to avoid a predatory lender is to compare mortgage offers from multiple lenders. Fannie Mae also says that borrowers should make sure all the information they provide is accurate and that every line of their mortgage application is completed. If you understand your loan completely, particularly the total borrowing cost over the life of the loan and the entire monthly payment, you are more likely to avoid being caught in a mortgage scam.

Home buyer education classes

If your goal is to buy a home but you are not sure if you are ready, working with a U.S. Department of Housing and Urban Development-approved housing counselor or a local or state government-sponsored housing education program could provide valuable information to prepare you to buy a home in a financially responsible manner. Find a free HUD-approved housing counselor on the HUD website.

Whether you opt for a home buyer education class or contact a lender, you must develop a solid financial plan before you can become a homeowner.

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