Home ownership, a place to call your own, people who have bad credit have these dreams, too. Youngsters sometimes make bad decisions that put big smudges on their credit histories. Sometimes things beyond our control, such as layoffs or a bad economy, are visited upon us. If you happen to be in that situation, even though you have now changed your ways, you may be worried whether or not achieving a bad credit mortgage is possible.
Probabilities and Possibilities
Getting a bad credit mortgage loan is probably within the realm of possibility even if your creditworthiness is damaged. You just need to know what you need, what to look for and where to look. So-called sub-prime mortgages offer potential home buyers with bad credit the possibility of financing a home despite their credit histories. Of course, there are a few hoops.
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Employment and Salary
Since your credit shows that you are a risk to lenders, they have to have some sort of guarantee. You may have missed payments in the past and they want to know that it is possible for you to successfully make them in the future. That boils down to having a steady job with a decent salary. Lenders like to see that you have had at least three months at the same job, but the longer the time the better. They want to know that after your usual monthly obligations that you have a salary sufficient to cover the cost of the loan.
Unemployed or Insufficient Salary
Those who are unemployed or do not make enough money each month to cover their usual expenses plus the cost of the mortgage cannot presently be granted a bad credit mortgage loan. They will have to wait until their financial circumstances and their job situations have changed. If potential home buyers have recently taken a new job, they should wait three to six months before applying for a bad credit mortgage loan. Again, the longer the better.
Large Down Payment
Having a large down payment for the home you wish to purchase has some very desirable consequences. It reduces the amount of money that you need to borrow. And it shows the lender that you are very sincere about taking a loan and making the payments. Of course, saving that amount of money shows the lender a large degree of financial responsibility. This kind of show helps them believe that you will pay off the loan despite your record.
Knowing Your Credit History and Credit Scores
In the past you have been turned down for a loan and having bad credit was given as the reason for rejection. You need to understand your credit situation yourself. Research on what FICO scores are and how they are derived. Understand why it is at its current level. When your are talking with a potential lender you will be prepared to explain the dark smudges on your credit history. Also, examining your credit scores, you may come upon fraudulent charges, accounts that are downgrading your scores, and just plain errors. You will be able to take the steps necessary to start rectifying the errors. Some will be reflected immediately in your scores; others, especially if you have a case of identity theft, could take months.
Debt-to-Income Ratio
Your debt-to-income ration is one of the last key to unlocking the mortgage door. Folks with good scores can be rejected for a home mortgage if they are carrying too much debt. Too many credit cards, lingering student loans, car purchases and liens such as alimony and child support all count. The rule of thumb is usually a 40 percent amount of debt to 60% discretionary money or money you can use for costs beyond your usual monthly obligations.
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