Getting a Home Loan With Bad Credit

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Even if you have missed payments or defaulted in the past, you might still be able to get a loan to help finance your home purchase. There are steps that you can take and places that you can go to improve your chances of getting a home loan despite having a lousy credit rating.

Here are four steps that can be used to secure a home loan at something other than a ruinous cost:

Collecting Documentation

You need to demonstrate two facts if you are seeking a home loan despite having less than spectacular credit. First, you need to show that you are a reliable individual who can be trusted to honor your business agreements. Second, you need to show that you have enough income relative to your existing debt obligations to take on the additional debt of the home loan.

Utility bills, particularly those for long-established business agreements, are excellent documents for proving the first, while pay-stubs, income statements, and income tax returns can be used to demonstrate the second. Similarly, bank statements are a good way to demonstrate both facts, particularly if you intend on approaching the bank listed on said statements.

Finding a Co-signer

Getting a co-signer is one of the best methods that can be used to persuade lenders to take you on as a customer. Of course, the co-signer needs to be an individual with a good credit rating because having someone with bad or even no credit rating isn’t much better than having no co-signer at all.

This is because the co-signer is the individual who is expected to take up the burden of the home loan if you default on your debt obligations. The lender has little reason to reconsider if the co-signer has no resources and is known to have defaulted on his or her past debt obligations.

Going to the Lender

Approaching the right lender is an important part of securing a home loan with a less than perfect credit rating. Under ideal circumstances, you should be approaching a lender with whom you have successfully done business in the past so that relationships can be used to your advantage.

Generally speaking, the bigger the lender and the more resources at its disposal the better the chances that it’ll take on a risky borrower as a customer. You should also look into lenders that specialize in lending to customers with bad credit by using comparison shopping engines dedicated to finding home loans.

Although most such lenders tend to compensate for the increased risk by charging more interest, there are also those that might be sponsored by government programs designed to encourage homeownership. For example, FHA-insured loans are easier to secure and have fewer hurdles if you are living in the United States.

Saving Up

Saving money for a bigger down payment is one of the best ways to both reduce the future debt burden and increase your chances of getting the loan. The less money that lenders have to lend, the less risk for lenders and the more willing they become to lend.

Conclusion

Bear in mind that getting a home loan with poor credit is simply impossible in some cases. If you have followed all of these steps and still met with constant failure, you might need to fix your credit rating before you try again in a few years. Taking the time to fix your credit rating not only helps you get loans at better prices but also gives you the time to save up so that you can afford to borrow less when the time comes.

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