A Simple Guide to Getting Bad Credit Mortgage Loan
Many times a person with a credit score considered as fair, poor, or bad may struggle to get a mortgage loan. This is understandable considering the fact that lenders often want to be assured that you can repay their money. If they think you may struggle to pay or fail to pay altogether, they will be reluctant to extend you the loan. Unfortunately, your credit card score is the first thing they look at when determining whether or not you qualify for the loan.
The good news is that you can now get a bad credit mortgage loan even with a very poor credit score. But how?
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Fix errors in your credit profile
Before you even think about getting the loan, take a second look at your credit profile and fix any glaring errors. The truth is that everywhere you go the lender will want to look at your credit score.
The first step therefore is to obtain a copy of your credit report. The Fair Credit Reporting Act (FCRA) allows every U.S. citizen to freely obtain a copy of their credit report from the Experian, Equifax, or Transunion – at least once in a year. Once you have a copy of the credit report, FCRA allows you to dispute and request for removal of any information that you think is false.
Sometimes processing of the report and fixing of the errors might negatively affect your credit rating but it’s always a risk worth taking. It is a critical step in re-building your credit and will open channels to new credit lines.
Collect and submit all relevant financial information to your lender
The next step is to update your financial standing. You might currently have a bad credit score just because you went through a divorce or lost your job. That doesn’t mean that you’re still broke. In the period following the divorce you might have accumulated new wealth, found a new job, and saved enough to show for.
Submitting all evidence regarding your most recent financial dealings might be all you need to convince the lender to give you a loan. Collect all information on recent pay stubs, your tax returns, W-2s, financial worksheets that summarize your income and expenditure as well as your assets and liabilities. You will significantly increase your chances of approval.
Get a cosigner on your application
A cosigner is someone who stands beside you in the loan application process; more like a guarantor. Basically, the person who chooses to be your cosigner is allowing the lender to hold them responsible should you fail to repay as agreed.
To further improve your chances of approval, when choosing a cosigner, pick a close friend or a relative with good credit and a sufficient financial cushion. Many times a worthy cosigner will not only help you get approved but may also help you get better terms.
Remember that although the cosigner is held responsible if the borrower defaults, both parties (the borrower and the cosigner) will take responsibility for taxes. Moreover, the loan will impact both parties’ credit profiles.
Apply with a lender that doesn’t use credit score ratings
You should also consider applying for your bad credit mortgage loan with a lender who doesn’t use credit score figures. What happens is that the information you provide is given a rating or a score on a computer before a real person takes a look at your application. If the computer rates you as a risk, your application will be declined pending review by a real person.
This is where it gets interesting. When you get the chance to speak with a real person, you need to convince them that you truly need the loan and that any past credit woes won’t stop you from repaying.
The person will usually listen to your story and assess the situation based on past experiences and the facts on the table. Sometimes, even when the computer says no, the human may say YES!
Apply to a specialist lender
Depending on the severity of the situation, you can always consider a special lender. Special lenders are mostly private lenders who price their products based on the element of risk. However bad your credit score is, they may still be willing to extend you the loan but on their own terms. You should expect considerably higher interest rates.
Often, people only stay in such products long enough for their credit situations to improve. Once you get a better score, you can refinance to a lower rate.
It’s always a case of never giving up. If you’re truly in need, you’ll explore all options and eventually you will get your bad credit mortgage loan.