What If I Have Bad Credit?
A lot of people worry about whether or not their credit is good enough to get a home loan. What many people do not realize is that there are very few individuals who have perfect credit. Also, many people do not realize that "bad credit" is a vague, subjective term that can mean one thing one year and a completely different thing the next year. In other words, what constitutes bad credit is always changing. More often than not what constitutes bad credit (or credit that is not good enough to meet the requirements of a home loan) is dictated by the housing market lenders and the general housing market itself. In other words, in a tight market a borrower would need a better credit history and score than he or she would need in a loose market when lenders are making more loans based on lower credit worthiness issues.
With this being the case the best place to begin is to see how bad your credit really is. By law you are entitled to one copy of your credit report from each of the three main reporting agencies per year. You should get a copy from each and look at each one carefully. If you see mistakes or if you see omissions, you should ask for corrections to be made. Once you have a good idea of where you stand in your credit history you begin looking at your current situation.
There are some things that can make or break a home loan besides the credit history. Take a very close look at your current debt situation. Are your credit cards maxed out? Are you late on any payments? Is your job history up to credit standards? Any problem that you can fix should be fixed before you approach a lender. If you are behind in your payments, get caught up on them before you attempt to get a home loan. A lender will wonder how you intend to pay for a home loan if you cannot pay the bills you have now. Resolve as many of your financial issues as possible and then seek your lender. You may discover that your credit really is bad or at least not good enough to get a traditional loan. When this happens you have fewer choices and options. The most common option is to get a sub-prime loan. A sub-prime loan is a home loan that is drafted for people with credit or income problems.
These loans usually carry a much higher interest rate than traditional fixed rate or ARM loans. The sub-prime market is a market into itself and you need to be very careful before entering into a loan of this nature. Even a sub-prime loan will be difficult if you do not first resolve any current debt or credit problems. If you find yourself overwhelmed, you may want to look into talking with a debt repair agency. These companies can help you get back on track with your debt and with your payments (if you are late on payments). In the long run, they can help repair your credit perhaps faster than you might be able to do yourself.