A bad credit home loan is a loan that is issued to folks who have a FICO score of 620 or less. They usually come in two varieties - bad credit mortgage loans and bad credit home equity loans. You might wonder why a person who already owns a home would have to apply for a bad credit equity loan and the answer is usually simple - late payments.
There are four crucial elements that lending institutions consider when determining whether you will have to apply for a bad credit loan.
Number one, as I have already mentioned is your credit score. You should never walk into a bank or apply for a loan online without knowing your credit score and you should be checking your score at least annually for accuracy. The good news is that your credit "report" is something you can view annually for "free" and the scores themselves can be acquired for a few dollars. All of this information can be accessed online. Right now, the magic number for a bad credit loan is 620.
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Number two, the amount of the loan. Let's be reasonable, you know what your annual income is and you know whether you are making your current rent payment or not. Obviously, you shouldn't be trying to secure a loan that will make a payment that is much different than your rent unless you are purposely living in a place that is well beneath your means. This is a common sense issue but sadly common sense is not that common anymore. Believe me, the lender knows if the loan is too big.
Number three, the loan requested compared to the actual value of the house. This factor simply implies that in today's crisis world it is getting harder and harder to get a mortgage for 100% of the value of the home. You'll need to try and come up with a down payment in most situations.
Number four, the debt to income ratio. This simply says that if you make $30,000 a year and you already have $40,000 worth of debt you might want to try and get that whittled down before you try and acquire a bad credit house loan. The lender will vary but they all have formulas which will help them decide if you already have too much consumer debt compared to your income.
Don't let all this confuse or discourage you in pursuit of a mortgage. Be patient but be persistent and see which lender is willing to work with you. Even in these dark economic times people are still buying homes and lenders are still loaning money!
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