If you have bad credit and think that getting a home mortgage loan is impossible, I have great news for you: getting a mortgage with bad credit can definitely be done! Generally, credit scores below 600 are considered sub-prime and the lower your credit score, the harder it will be for you to secure a mortgage -- harder, but not impossible.
A mortgage is a secured loan, meaning you must put up your house as collateral in case you default, or are unable to pay back the mortgage loan. Therefore, if you fail to pay off your loan or fall far enough behind on payments, your lender has the legal right to foreclose on your property. So as mentioned above, it may be more difficult -- but not impossible -- to get a mortgage if you have bad credit.
Statistically speaking, individuals with a lower credit score are more likely to default on their loans. To counter this risk, lenders will usually limit the amount of credit you may receive and charge you a higher interest rate. Lenders may also charge people with bad credit higher late payment fees.
So what Can You Do?
If you have a bad credit score and want to get a home mortgage loan, here's what you can do:
Improve Your Credit Score Before Applying for a Loan
If you are patient and can wait to get your mortgage, you should consider trying to improve your credit score -- the higher your FICO score, the lower the interest rate you can get, and therefore your monthly loan payments will be less. You'll also pay a lot less over the life of your loan this way! You may want to consult a reputable credit counselor for help improving your credit score.
Ask for Someone with Good Credit to Co-Sign
Sometimes you can get a better interest rate if you have someone with a better credit score to co-sign on your loan. Your co-signer would also be responsible for repayment of the loan if you were to default for some reason. This could also prevent them from taking out loans in the future because the co-signed loan is considered as part of their debt ratio.
Have Someone Get the Mortgage for You
If your FICO credit score is so low that you can't get approved for a loan by anyone, try and see if you can convince someone close to you with good credit to get the mortgage for you in their name. The other person would have to be trustworthy and responsible, as this could hurt any relationship (romantic or not) if it were to somehow go wrong. If you have the right person in mind and they are willing to help, this can be a real blessing.
Sell Your Home and Pay Cash (or even Do a Short Sale)
You could sell your current home and use the proceeds to pay cash for your new home if it is less expensive. Another option is to come up with large down payment from the sale of your home to help your chances of getting approved for a mortgage. This way, you can also work on rebuilding your credit by making on-time mortgage payments.
Getting approved for a home mortgage with a low credit score may not be as difficult as you think. You will probably spend more money on higher interest rates and you might have to settle for a smaller loan than someone with good credit could get, but the important part is that you have options and possibilities! Remember, it's never too late to start working on improving your FICO credit score. Good Luck!
Original article found here: http://mortgageandrefinancingtips.blogspot.com/2009/07/bad-credit-mortgage-loan-how-to-get.html
For smart mortgage, home loan and refinancing tips, visit http://mortgageandrefinancingtips.blogspot.com
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