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C.H. Naamad

Boston Luxury Residential

By C.H. Naamad | Broker in 02116

How to Get a Home Loan With Bad Credit

To easily snag a home loan, an applicant needs to be a "triple threat" -- have an excellent credit rating, a large down payment, and low debt-to-income ratio with steady significant income. But even if you have bad credit, you don't have to rule out future home ownership.

Homebuyers with bad credit due to a foreclosure or bankruptcy, or who have previously been turned down for a loan, can still get a home loan. 
Melanye Miller, a 40-something Chicago schoolteacher, has been hankering for three years to move out of the single-family home she was renting, so that she could purchase a place big enough for her and her three children. But when her credit report revealed a poor score, she knew banks would not give her a home loan, especially not one with zero down payment.

To increase her chances of getting a home loan, Miller began a long road to recovery from her bad credit history, which included not using credit cards and setting aside money each month for her house fund. Finally, in November, after saving for almost two years, she purchased a four-bedroom condo. "I saved and saved, but I decided to purchase a foreclosure condo because it was less expensive and required fewer funds," she says. "Owning a home is not out of the question if you have bad credit. You just have to do your research, know what you can really afford, do even more research, and save your money."

There are hurdles, for sure. But for those with a less than stellar credit history, you need to highlight your "compensating factors" -- those mitigating factors not reflected in your bad credit score or on your credit report.

Even though there are few opportunities for personal appeals when applying for a home loan -- for instance, explaining why a bill was not paid on time -- you can still try to present yourself in the best possible light. It just may help tip the scales in your favor when you've got bad credit in your history.
Here are seven compensating factors to consider submitting with your home loan application to help improve your chances for obtaining a mortgage, even with bad credit:

1. Flaunt other assets. If you don't have a large cash reserve or a large down payment, show loan officers the financial assets you do have. For example, if you have whole life insurance, list the cash value on your home loan application. If you have a sizable 401(k) or other retirement accounts, be sure to list them all and their current values. This strategy lets lenders know that if you're ever in a bind paying your mortgage, you're able to pull from one of these other sources to make ends meet. And if you're seeking to refinance, showing a low loan-to-value rating is a huge plus. 

Please follow link to rest of article: http://realestate.aol.com/blog/2010/06/29/how-to-get-a-home-loan-with-bad-credit/
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