|Written by Susan Golis|
If you have bad credit you will find that conventional methods for obtaining a loan for a home through a bank will be difficult and that your application may be rejected. If that is the case you will need to look for a high risk mortgage. A high risk mortgage will allow you to own your own home.
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Search online for home lenders that specialize in high risk mortgages for people with no credit or bad credit history.
Locate a home lender by searching online for the Federal Housing Administration, FHA.¬†¬† The FHA home loan is backed by the government.¬†¬† The government does not lend the money to you; they insure the home loan that is made to by the lenders.¬† The loan is insured against default losses.¬†¬† If you default on the high risk loan by not paying your mortgage then the FHA will cover the lender‚Äôs losses.¬† If your credit score is 580 then you will qualify for the down payment of 3.5% however you will need to pay closing costs.
Another way to get a high risk mortgage is to look at all of your options.¬† Search online for ‚ÄúBad Credit Home Loan‚ÄĚ you will view a list of mortgage brokers that will work with you in optioning a home mortgage.¬† People with bad credit generally pay a higher interest rate than mortgage holders with good credit.¬† You will also need a down payment from 5 to 20 percent and many times pay closing costs.
Consider renting a home with purchase options.¬† For this transaction you are generally required to fill out an application, some sellers ask for your social security to check your credit history, other sellers do not.¬†¬† Fill out the rent home to own application with accurate and honest answers.¬† Go over the contract carefully. Look at the stipulations of the contract and ask questions.¬† ¬†Many sellers want 10 to 20 percent down payment for the home and also the buyer may need to pay closing costs.¬† The down payment will be added into your monthly rent payment.¬† If your rent on the house is $900.00 a month you may l need to pay $1,100.00 for a rent to own home.¬† The extra $200.00 will be applied to your down payment for the home.¬† At the end of the lease the seller will present you with a purchase contract and you will note the extra monies have been applied as your down payment.
Get a high risk mortgage by seeking a private lender.¬† A promissory note will be drawn up and you will need to agree to the terms of the note.¬† The lender will request a certain amount of interest to be applied to the loan payments and may ask for collateral, such as a lien on your car.
Before seeking a home loan with bad credit evaluate your personal debt.
Determine your back-end ratio by adding the total amount of money that you earn monthly, after taxes and set that amount aside.¬† Next add up your monthly payments for car payment, credit cards, collection payments, and any other payment that you make that shows up on your credit history.¬†¬† Divide your total money paid out by your gross monthly income.¬† If find that your back-end ratio is 41% or higher, your home loan application will be rejected by conventional loan service; bank or FHA.
Take steps to improve your credit score by making your payments on time and paying down your credit cards.¬† Cut your spending and budget your money.¬† After a year of timely payments you will be able to reapply for a home loan that has lower interest.
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