Tuesday, November 10, 2015

The right way to get a home loan with less than perfect credit



The first thing you need to know is if in fact the traditional lenders (such as credit unions and banks) consider your credit score to be “bad”. Bad doesn’t necessarily mean that you can’t obtain a home mortgage loan but it does mean that the mainstream lenders will not provide you with one. As a general rule, a credit score of less than 620 can make it difficult to obtain a “standard” home loan.

If you find yourself in this position it is possible to obtain a loan from a mortgage lender that specializes in “less than perfect” credit. Be aware, however, that you will probably be charged a higher interest rate and higher discount points than you would with a prime lender. People with credit problems do this all the time.

If you have just completed a short sale it may be better to wait for 2 years to buy another home because the interest rate offered will be much lower. If you have had a bankruptcy in the past and keep your credit clean for 2 years you may also be able to qualify for an FHA loan. If, however, you do not wish to wait to buy another home than a bad credit mortgage lender might be your only option.

In this event there are some do’s and don’ts that you should follow in order to protect yourself from any type of predatory lender or from spending too much money on a high interest loan in the years to come. First of all check out the lender with your state’s licensing board and be sure to deal only with a reputable lender. Consider this type of loan as a temporary solution and plan to refinance with a standard lender as soon as possible -possibly in 2 years or so.

Considering an adjustable rate mortgage could possibly help to keep your mortgage payments lower for a period of time and might be a good short term solution. This is something you need to check out thoroughly at the time as the market changes constantly. It’s best to consult a loan professional when the time comes. DO NOT agree to a prepayment penalty under any circumstances. This means that you are penalized if you pay off your loan early and could cost you thousands of dollars when the time comes to refinance your loan at a lower interest rate.

Although no of us wants to pay more to buy a home than is necessary, many time it does makes sense to pay a higher mortgage payment that to rent a home with no equity at all. Just keep in mind that a high rate loan should only be a temporary solution if your credit is not as good as it might be.

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