Home Loans With Bad Credit - Important Facts for Getting the Loan You Want


Many people with bad credit assume that their application for a home loan will be automatically denied, just like credit card applications. All they know is that bad credit equals not loan. However, the lending process is far more complicated than that and finding a home loan with bad credit is actually easier than many people think. This article will review the important facts that you need to know to get home loan approval with poor credit.

Fact #1: Credit Isn't Everything

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Due to the secured nature of home loans (the value of your property insures your loan in a way that credit cards lack) there are a lot more possibilities for borrowers with bad credit. Though your interest rates will likely be higher than the interest rates offered to borrowers with better credit scores, there is more to the home loan evaluation process than credit score alone.

In fact, alongside credit score, the down payment that a borrower offers is equally important in getting a lender to offer him the loan. Lenders will look at a ratio called your LTV or loan-to-value ratio. In layman's terms this means looking at the value of the home that you will buy as compared to the total amount of money that you want to borrow. The lower that ratio, the better chance you have of receiving the loan. Therefore, by having a large down payment, say, 20% or more of the home's value, is your best bet in getting a home loan despite your poor credit.

Fact #2: Not All Bad Credit Is the Same

Another really important factor in determining your eligibility for a home loan is the reasoning behind your so-called bad credit score. Not all credit scores are the same. Though many people with bad credit came by their situation through poor choices and irresponsibility, many others were merely a victim of poor economic circumstances such as a job lay-off or unexpected medical bills.

Therefore, before you go looking for home loans with poor credit it is important that you take time to look over your credit report and take an opportunity to understand why your score is where it is. In cases when circumstances put you into a bad position, an explanation can go a long way. Also, by going through your credit report you can be on the lookout for any fraudulent entries or identity theft.

Fact #3: You Need to Look before You Buy

Just as you need to make sure to do a little legwork in the housing search, you also need to make certain that you take the time to look into the loan that you want to take and the lender that you want to take it with. Having bad credit usually means that home buyers will be rejected at traditional banks. However, the online marketplace is happy to serve you and many lenders online specialize in working with borrowers whose credit histories are not so great.

However, this does not mean that any online lender that you contact will give you the best deals and rates possible. It is essential to do research on any lender you consider contacting through independent agencies such as the Better Business Bureau. It is also important to receive quotes from 3-5 reputable places before making any decisions.

Getting a Home

When a borrower has bad credit, considering a home loan can seem like a lot. However, there are ways to get a home loan with poor credit as long as you know the facts before you start your search.

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