Having a bad credit score or a high risk profile makes getting a home loan harder, but not impossible. You may not have the benefit of showcasing your FICO score and a perfect history of creditor payments, but you can prove your financial stability in other ways, and you can also take advantage of government programs to get back on your feet. Here are some things that you should know about how to get a home loan with bad credit.
Am I seeking out multiple loan offers?
Many people believe that they do not have leverage to seek out multiple home loan offers if they have bad credit. This is more of an emotional concern than a financial one. Perhaps you are feeling guilty because you were not able to keep up with your payments in the past. You must forgive yourself. Part of this forgiveness is realizing that accepting a bad deal will only make it harder for you to make restitution on your other debts. You need the best deal possible so that you can have a free cash flow, more equity, and assets to put towards debt reduction. To this end, you need to seek out the banker who will help you get the lowest interest rate and provide you with the most opportunity to build financially. Make lenders compete for your business.
Do I have friends who trust me?
Your entire story cannot be held within the numbers on a financial report. You may have bad credit, but there are extenuating circumstances that may not explain the entire narrative. Your friends and family understand who you really are. If they are willing to go to bat for you in the lender’s office, you can use them as a guarantor.
A guarantor is an outside third-party who is willing to accept responsibility for a loan if the primary borrower defaults for any reason. This guarantor lowers the risk profile of the original borrower, opening up many financial opportunities to that borrower. If you have bad credit, bringing in a guarantor is one of the best ways to improve your chances at a viable home loan. You should also work out a formal, written agreement between yourself and the guarantor so that if anything goes wrong, you both understand exactly what needs to happen.
Have I built up my cash reserves?
In terms of lender forgiveness, large wads of cash will outstrip almost everything else as the ultimate catalyst. As you pay down your debts, pay yourself as well. Paying yourself means to build up a cash reserve in a bank account that is easily accessible to you. The larger this cash reserve gets, the better your property loan offers will get.
Use your cash reserve to entice lenders with a large down payment on your home loan. This gives you immediate equity in a property and reduces the risk of the lender as well. You can also use this cash reserve to sidestep the hassle of fixed expenses that go along with the purchase of a home such as closing costs, government fees, and home appraisals. Finally, a large cash reserve gives you time. You will be able to live comfortably without thinking that you have to move into a property immediately, and this will increase your leverage with lenders and home sellers.
Am I making use of all of my government options?
The government is behind almost 97 percent of all home loans in the United States. Not all of these people have excellent credit, but the government does. Lenders are very happy to take on a loan package that is insured by the Federal Housing Administration (FHA) or the Navy Federal Credit Union. Because the government has the resources to act as the ultimate guarantor, your personal credit becomes less of an issue. As a matter of fact, you may be in a better position with one of these institutions behind you and bad credit than you are taking on a loan by yourself with good credit.
Take a hard look at the eligibility requirements for getting your home loan insured by the FHA, the Navy Federal Credit Union, or the United States Department of Veterans Affairs (VA). Apply for all of the programs that you think you may be able to get into. Keep in mind that these are only a few of the government institutions with programs that are specifically geared towards helping low to middle income people with bad credit: You may also be able to find a low credit program in one of your local credit unions.
Am I proactively building my credit and my personal relationships with bankers?
One of the major opportunities that you have with bad credit is the ability to talk to bankers more often. Let your banker in on your efforts to improve your credit. Frankly, any leeway that a banker has in adjusting your loan program will only occur if that person likes you. As a banker acts as your financial mentor, he will also respond to you more quickly if you build this relationship with future business in mind. After all, the business of banking is all about attracting loans, so dangle the carrot.
