Before the housing bubble burst a few years ago, getting a home loan despite bad credit was a pretty easy feat. Many people who were in the process of recovering from situations beyond their control were still able to get a home loan with little money down. However, in order to get qualified for a bad credit home loan these days you need to have a minimum of 20%-25% to put down on the purchase. The good news is there are still options out there.
What Is Bad Credit?
In the home mortgage marketplace, bad credit is defined as any credit score below 680. Even people who have no problem getting smaller loans such as auto loans or personal loans will have a hard time getting a mortgage in the current financial environment. That is why it is of the utmost importance to educate yourself about the state of the mortgage market today and what it is you need to do and have in order to get the loan you need to purchase a home.
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Income: An Important Correlating Factor
Besides credit score, the other major factor that banks and lending institutions consider when looking at a mortgage application is the income of the borrower. They want to see that you make enough money each month to comfortably afford the mortgage and know that the income you have is reliable.
For this reason, anyone who is self-employed will have a larger onus put upon them. If you run your own business, you will need to display the profitability of that business in order to prove to a mortgage lender that your income is stable and sufficient from month-to-month. In cases when your business is new or your income varies greatly each month, this problem can be as bad as a poor credit score in a lender's eyes.
Bad Credit Solutions
Whether your problem is a low credit score or an insufficient income, there are still options available to you in the form of bad credit home loans. Generally, you can obtain these loans from either local mortgage brokers or private companies that operate online. Generally, these companies will use a different set of criteria, namely a down payment and your home's equity, to decide whether or not you qualify for the bad credit loan you seek. The benefit of this method is that it takes past mistakes out of the equation and focuses instead on the bottom line that you present today.
The Reality of Your Credit Score
One final word of advice is to know what you are dealing with before you make any further moves. Many people who are denied a home loan by a traditional bank automatically assume it is due to a poor credit score. However, many traditional banks are so stringent with their qualification criteria these days, that truly bad credit may not be the case. Instead, you need to make sure to personally check your credit report so that you know how "bad" your situation really is before you proceed.
Find the Loan You Need
If in the end the result of your self-check reveals that a poor credit score is to blame, all is not lost. Remember, that is what bad credit home loans are for in the first place. There is an option for poor credit borrowers to obtain financing for a new home if they know what to look for: a bad credit home loan.
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