Bad Credit Home Loans
There are legitimate loan options for people with bad credit. The FHA loan program, for example, only requires a credit score of 580. An FHA loan will require private mortgage insurance (PMI) for the life of the loan, which will add to your monthly payment. However, this monthly insurance payment can be removed in most cases once you’ve reached 20% equity in your home.
This loan may also have a higher interest rate, as the interest rate you receive is a reflection of your credit standing. Looser credit standards for FHA loans may also mean that bankruptcies, repossessions and foreclosures may be overlooked if certain conditions are met and enough time has elapsed since their occurrences.
If your credit is still keeping you from qualifying for a mortgage, these steps will help you work towards home ownership.
Check your report for negative credit entries.
While some mortgage programs allow you to purchase a home if you have bad credit, a credit score alone doesn’t guarantee approval. Some of the most serious credit entries that can keep you from buying a home include:
• Accounts in collections
• Past due accounts
You can order your credit reports for free from AnnualCreditReport.com once per year. Consumers are eligible to receive a report for each of the three credit reporting agencies: Equifax, Experian, and TransUnion. This website is the only government-approved source for credit reports, so do not be fooled by similar sites that promise free reports.
Dispute inaccurate information.
An estimated 25 percent of credit reports contain major errors. If your credit report has inaccurate information, open a dispute with each of the three credit reporting agencies: Experian, Equifax, and TransUnion. You can do this on each agency’s website or by mail.
Bring and keep accounts current.
If you have past due accounts or accounts in collections, bring them current. Contact your creditors and set up payment plans if necessary. Once your accounts are current, it’s crucial that you pay your bills on time every month. The longer you consistently pay your bills on time, the higher your score will climb.
Think Better, Not Perfect
Bad credit doesn’t mean you have to give up the dream to buy a home. As you explore your options and work towards repairing your credit, you’ll find that owning a home is well within reach. Bad credit home loans are designed for folks who have imperfect credit, so your credit does not need to be perfect. However, getting your credit in better shape will get you a better interest rate and increase your chances of approval when you apply for a mortgage.
Jill Overmyer contributed to this post.