Those who carry the burden of bad credit, whether it comes from delinquent credit card and other unsecured loan payments, a foreclosure, or bankruptcy are often emotionally and mentally beat down to the point they believe there is no hope for obtaining a mortgage loan. However, getting such a loan is, indeed, possible if you know where to look, what to do and what to expect.
Bad Credit Mortgage Options
If you have bad credit due to any of the above mentioned reasons and want to immediately buy a home, you can go to a hard-money lender. These lenders are usually willing to make a mortgage loan in as little as six months after a foreclosure or bankruptcy filing. However, expect to slap 20-35% down and have very high interest rates and penalty terms attached to your mortgage.
If you have gone through foreclosure and want to avoid these enormous amounts then you will usually need to wait a full two years before seeking a mortgage loan through a conforming lender (FHA guidelines call for a two-year waiting period). Those who have filed bankruptcy will be required to wait four years.
However, abiding this time will mean that you qualify for far lower down payment and interest rates. It will also give you time to improve your credit and save up for the down payment.
If you wish to avoid both the hard-money lender and the waiting period, consider searching for a home offering seller financing. This option, although difficult to find, provides certain benefits for someone with bad credit. There is usually no qualifying, flexible down payments and loan terms, lower rates of interest and fast closings.
How to Qualify for a Conforming Loan
If you have gone through a foreclosure or bankruptcy and have chosen to go the route of the conforming loan and abide the required waiting periods, here are some things to do while you wait. These steps will help to increase your chances for qualification.
- Maintain steady employment for at least a two-year period which earns a regular wage or salary. This not only helps to demonstrate that you can meet loan payments, but it also shows responsibility.
- Acquire a major credit card, make a limited amount purchase and be sure to make timely payments on the balance. Credit cards are particularly easy to get after a bankruptcy because lenders know you now have a clean credit slate.
- Make sure that any bills you accumulate are paid on time. It may help to sign up for automatic payments.
- Save up at least 10% for an estimated mortgage loan down payment.
Once you obtain a mortgage loan, be sure to find out from your lender on a yearly basis if you can refinance your existing loan at a lower rate of interest.