Credit Repair

How To Qualify For Bad Credit Home Loans?

Though it is true that bad credit home loans are not out of the realm of possibilities, it is also true at the same time that the process is not an easy one. Therefore, the first thing you have to do is to accept the hard fact that you have a bad credit score and that the journey to getting a home loan is not going to be smooth. You will have to be strongly determined in your approach. Besides that, you will also have to be financially responsible, in a highly disciplined way. Following is a brief rundown on some of the basic steps that you need to follow in this regard.

Understand Which Score Is Considered As Bad

Before you start hunting for bad credit home loans, make sure you understand what exactly a bad score is. If your FICO score is somewhere between 620 and 680, it is not bad. In fact, it is a decent score that should not create much problem for you when you apply for home loans. But, if your score is lower than even 620, you are in problem. Mortgage lenders usually do not consider applications for home loans from those who have a credit score of below 620.

Give Yourself Some Time To Raise Your Score Up

Buying a home is a big decision. Even if you do qualify for bad credit home loans, the lenders are going to charge you an extremely high rate of interest. Therefore, there is no need to hurry. You can make things much easier for you by giving yourself some time, say 3-6 months, when you will be acting in a smart way with your finances and work on to improve your credit worthiness. Three to six months is a decent period of time, where you can do a lot of things to increase your FICO score. Remember the five factors that make up your credit score. Just work on those factors. For example, you can start making timely payments to all your debts and utility bills. You can start paying much larger payments toward your debts so that the existing outstanding debt balance can be reduced faster. Do not make further inquiries for new credit during this period. When you show this determined financial behavior for a period of six months and then you apply for a home loan, your lenders will be impressed to see the improvement you have achieved within such a short period of time. Even if you are still behind the 620 mark, this effort will eventually maximize your chances of qualifying for a much better deal in bad credit home loans.

Offer A Large Down Payment

You can make things much more favorable for you by offering a large amount of down payment. As a general rule of thumb, the higher down payment you make, the lower interest rate will be charged on your loan.

Work On A Strict Budget

During the six months of period that you have given to yourself, you must also work on a strict budget plan, where you will be doing everything possible to reduce your expenses and to increase your income. This will put you in a much better financial position. You will be able to pay off your debts faster, which will result in an improved credit score. In addition to that, you will also be able to make a large sum of down payment.

Be Mentally Prepared To Accept A High-Rate Offer

Bad credit home loans charge a comparatively much higher rate. Therefore, if despite all your efforts you are still having a score below 620, you must be mentally prepared to accept a high-rate offer. But, here again, make sure you do a thorough comparison and choose a loan that is charging you the lowest possible rate. Accept it as the penalty of having a poor FICO score.

You just be consistent in your efforts even after getting the loan, which means keep up with a responsible financial behavior. As time progresses, you will definitely be able to achieve a high score. At that stage, you can consider refinancing the loan at better terms. Overall, if you take a careful approach and work with a planning, there is no reason why you should not be able to get a decent deal in bad credit home loans.

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