How to Get a High Risk Mortgage

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.

Image Credit: Bad Credit Mortgage Rate

Step 1

Search online for home lenders that specialize in high risk mortgages for people with no credit or bad credit history.

Step 2

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’s 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.

Step 3

Another way to get a high risk mortgage is to look at all of your options.  Search online for “Bad Credit Home Loan” 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.

Step 4

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.

Step 5

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.

Tips

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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