Post-Recession Home Loans with Bad Credit

Get a bad credit home loan Even if you have bad credit, it is still possible to purchase a home. You must understand, however, that getting a bad credit home loan isn't as easy now as it was in the past. Before the housing market collapsed, lenders gave loans to people with lower credit scores and also gave out loans with questionable terms.

While a credit score in the low 600 range was acceptable in the past, individuals now need a credit score of at least 750 to qualify for the best rates. To even qualify for a non-FHA loan, you will need a credit score of at least 660.

Know your Credit Profile Before Applying

If you know your credit score and profile, you will be able to obtain mortgage quotes in minutes. With mediocre credit, you may still qualify for a home loan, but you will qualify for less money and you will be required to pay a higher interest rate. Be honest in your loan application and directly address any questions you know a lender will have based on your credit report on the face of your application. Your direct honesty could make a difference between a loan approval or a denied application.

Get a Cosigner

If you qualify for a loan on your own, but qualify for an interest rate that is too high, you should consider getting someone to co-sign on your loan. This means that if you do not pay your mortgage, the cosigner agrees to make the payments. If your cosigner has a higher credit score, you can qualify for a lower interest rate because a lender will see you as a lower-risk borrower.

A lender is willing to lend money to a lower-risk borrower at a lower interest rate because there is a much smaller chance that the loan will become a bad debt to the bank.

Improve Your Score Before Applying for a Loan

If you aren't under contract for a home and want to improve your credit score before applying, time is your biggest ally. First, you need to dispute any errors on your credit report. Then, you need to pay off any accounts that are in collection. Third, you need to satisfy any liens by contacting the lien holder listed on your credit report.

While a credit score in the low 600 range was acceptable in the past, individuals now need a credit score of at least 750 to qualify for the best rates.

After you clear up any errors and collection accounts, pay off your credit card debt, but do not close your credit card. How a credit score is calculated is by a ratio of outstanding debt to available credit limit. The lower this ratio is, the better your credit score will be.

Make sure to keep your payments current. Ask lenders to remove late payments from your credit report. If you were only late once, they may do so. It doesn't hurt to ask. Also remember that if you have a bankruptcy judgment or foreclosure, you may not be able to obtain a mortgage for several years. You should still take the effort to improve your credit score so that you can purchase a home once the bankruptcy or foreclosure is off your record.

Improving your credit score takes time. The longer time you have between commencing your credit score improvement efforts and when you actually apply for a loan, the better off you will be.

Get Someone to Obtain a Mortgage for You

If your credit score is beyond repair or you can't find a co signer, you can get a parent, spouse or other family member or friend to get a mortgage for you. You can still be on the deed to your home, but the borrower will also have to have an ownership interest in the home.

If one spouse has excellent credit while another spouse has bad credit, a couple should strongly consider having the mortgage in one spouse's name.

Taking out a mortgage for someone else isn't something to take lightly, so don't be disappointed if your friends and loved ones are hesitant to help you out. The mortgage will show up on their credit report and any late payments you make will directly affect them.

Home ownership is a dream that everyone deserves to make a reality. Don't let bad credit ruin your dream. There are ways to obtain a mortgage or at least purchase a home even if you have bad credit. For more information, visit USA.gov.

Meg C.