Getting a mortgage when you have bad credit can be a challenge, but it is not impossible. While the recent downturn in the credit market has made it hard for people without perfect credit histories to refinance or obtain a new mortgage loan, it is not impossible to get a loan. It will take a lot more work and preparation than it used to, however.
To start, many banks are requiring the potential candidates for a mortgage loan have a higher down payment than they have required the people to have in previous years. In fact, many banks are requiring at least a ten percent down payment for people with great credit scores. People with bad credit are now often required to have a down payment of at least twenty percent or more.
In addition, many banks are also requiring that people with bad credit show that they have the funds available to cover an emergency. The exact amount required varies from bank to bank, But many consumers are reporting that they are expected to have between three and six months worth of mortgage payments in a bank account. Throughout the loan verification and losing process, this money must remain untouched. Furthermore, it must be readily accessible. This means that it cannot be part of a retirement account or other type of savings that there would tax penalties on.
Of course, many people with bad credit have looked at these requirements and realized that they do not have the savings necessary to qualify for a mortgage loan. Fortunately, there are other options. There are still several banks that offer loans with a small down payment to people with bad credit. Finding these loans can be hard, however, and many come with other restrictions.
Be prepared to pay a higher interest rate than the prime rates offered to people with perfect credit. Furthermore, it is usually necessary to show proof of steady income for the past several years. Depending on the banks specific requirements, it may be necessary to have had the same employer for years.
Finally, it may just be neccessary to improve your credit score. Get a copy of your credit report and review it for any errors. Also try to pay down consumer debts, thereby improving your credit used to credit extended ratio. Make all of your bill payments on time, as well. If nothing else works,wait about six months before applying for a new mortgage. As time passes, negative information will fall off your credit report.
By Andre Bradley