Qualifying For A Bad Credit Mortgage - An Inside Look
Knowledge is, indeed, that which, next to virtue, truly and essentially raises one man above another - Joseph Addison There is little doubt that purchasing a new home is one the biggest financial decision most people face but finding the right house that you can call home is becoming an increasingly difficult task. Step one in the home ownership process is getting pre-qualified for a loan. When you get pre-qualified for a loan the lender works backwards to determine the biggest loan that you qualify for according to your income, credit and current outstanding debt. How do they do it? Here is brief overview… First off, you need to remember that only income that can be documented is considered income when it comes to determining how much you qualify for. If you can't provide a lender with proper documentation of your income then they won't used it. For example, if you get paid by the hour and work little overtime or if you get paid on a salary then determining income is pretty easy.
If you are paid monthly your income is multiplied by 12 and if you get paid every couple of weeks it's multiplied by 26 and so on. On the other hand, it gets more difficult if you work a fair amount of overtime or receive bonuses and commissions because that income varies. The normal process for borrowers that fall into this category is that the loan officer will simply use previous one or two years W2 income and combine that with the past few months actual wages from you pay stub and then average that total income to arrive at your current monthly income. For self-employed or 1099 borrowers income is pretty much determined by what your net income indicates from you tax return. Even if you make $75,000 a year but due to expenses and write-offs your tax return shows that you make $30,000 then $30,000 is used to determine how big a loan you can afford or qualify for.
However, over the past few years lending institutions have becoming increasingly creative on how they approve borrowers for loans, especially those borrowers with a bad credit history. Many programs require less income documentation and in the case of a loan programs like "stated" or "no documentation" no income documentation is required. In summary, with the rapid increase in home values over the past few years pricing many families out of the home market, the good news is that the resulting "easing" of lender requirements has helped offset this by making it much easier to qualify for a mortgage and get into the home of your dreams. For options in finding the best mortgage, new or refinance, check out the links below.