The housing market can be tricky to navigate, especially when you are trying to secure financing for a mortgage. The task can be made even more difficult if you have a bad credit record, caused by too much debt or a previous bankruptcy. Finding and securing a loan can be also be expensive when your credit score is not up to par. If you are looking to purchase a home or condominium and have really bad credit, there are still options for securing financing. Be prepared to do a lot of legwork to find the right financial avenue for you.
If you do not have a copy of your recent credit report, you will need to order a copy from at least one of the major credit bureaus.Pay the service fee to request your credit score at the time you place your order. Credit reports and scores can be ordered online or through the mail.
Review your credit report and score to see where you stand. Also review your current income amount as well as the total amount of your monthly expenses. List your figures in your notebook. List any savings account balance you have that can be put toward a down payment.
After analyzing your financial situation, understand that your bad credit rating will cost you more money than if your credit was satisfactory, if in fact you can even find a lender to work with you. Your focus should be on improving your credit score for at least six months to a year before applying for a loan. Apply for a secured credit card, pay off debts, maintain steady job status and make all of your monthly payments on time to increase your credit score. During this time, begin saving a down payment amount of at least 10 percent of the total price of the home.
After working to improve credit for six months to 12 months, reorder a copy of your credit report and score for review. A credit score of 720 or higher will help keep interest charges low. If you have achieved an improved credit score and are ready to move on, proceed to the next step. If your score has not show remarkable improvement, continue working on the improving your credit score.
Browse through several real estate listings to find an average price for the kind of home you are interested in buying. Find a mortgage calculator online. Using your income/debt figures and your savings information, calculate the approximate monthly payment on the type of home you priced. The mortgage calculator will tally an estimated amount. Compare that total with your income/debt totals to decipher is the home price is affordable.
Once you have found a home you can afford, you can begin gathering information on lenders that provide home financing. Use the Internet or referrals to find a reputable lender. Contact several lenders and discuss your financial situation. You may also opt to schedule an appointment at your local bank or credit union if you have a lengthy history with them.
If the lender provides you with direction or advice as to improving your chances for an affordable mortgage, follow its instructions to improve your chance for loan qualification.
If you have been approved for an affordable loan, ask the lender to provide you with a preapproval letter that indicates the amount of the loan for which you qualified. This is will assist real-estate agents in finding you a home in your price range.
Order and review your credit score even before you are ready for a home to ensure enough time to save for a down payment and improve credit scores if necessary.
Stay organized through the home-buying process by keeping all your relevant paperwork in one file folder so it will always been on hand when you need to reference information.
Follow up with your proposed lender and return all paperwork completed and accurate. This will help keep the process moving.
Make two or three copies of your financial records to turn in with loan applications so you don't have to wait to mail in papers.
Look for properties that have owner financing in which your financial situation can be reviewed at a more personal level and flexibility is available.
To improve your chances at qualifying for a loan, do not apply for loans randomly or risk having your credit score drop in points due to excessive activity.
Review the reputations of the lenders you are interested in using through the Better Business Bureau and the state regulation agencies governing lenders in your state..
Do not rush into any decisions regarding the purchase of a home. Allow yourself sufficient time to do your homework, improve your credit, and find an affordable house in which you'll want to live.
Be sure you can afford the home you are looking to buy. Risking foreclosure on your home will destroy the credit you have left, making it even more difficult to finance in the future.
Things You'll Need
Copy of your credit reports and score
Income statement/tax return