Is it possible to get home loans for people with bad credit? In today’s economy, this is a question that comes up for people more and more. One may wonder if he or she can even get a home loan with bad credit, and what are the options one has as far as the lenders he or she can use.
Even in today’s tough economy, there are options for home loans for individuals with bad credit. One just has to do his or her research in order to find an option that works for them and is reasonable. Even with a bad credit score, it is possible to get a home loan. While having bad credit may seem embarrassing during the home buying process, one should know that they are not alone.
With the present economy and state of the housing market, finding home loans for people with poor credit is not an uncommon occurrence. Knowing that you are not alone and that there are ways to finance your home can be comforting in the home buying process. One appealing option for home loans with bad credit is an FHA loan.
With an FHA loan, one can put down as little as 3.5% for a mortgage on a home. FHA requires a minimum FICO score of 620 (and in some cases even lower), which allows more leeway in giving home loans to those with bad credit. FHA also allows one to purchase a home only two years after filing bankruptcy and only three years following the foreclosure of a previous home.
One may also have a higher debt ratio than with other mortgage companies which makes it easier to get a home loan. Knowing that there are options for purchasing a home can really ease the stress of the whole process. Those with bad credit should remember they are not alone. It is possible to get home loans with bad credit.
Simple steps to obtaining Home Loans For People With Bad Credit
There are a number of sources of advice out there on how to get approved for home loans for people with bad credit but, regardless of how many different schools of thought you can find, there will be as many contradictory views. I have come across a number of valuable suggestions on how to get approved for a home mortgage loan with challenged credit.
The first piece of advice on how to get home loans for those with bad credit is to register to vote. One of the first ports of call for your credit scoring firm is this document and provides them with reassurance that you are firstly a real person and secondly organised enough to register yourself on a document that is by no means compulsory, however requires a certain degree of self-preparation.
Secondly, you will need to improve your credit rating in order to obtain a home loan with. One way to do this is get a credit card and use it to make some purchases over the month. However, don’t pay off the full amount each month, but instead pay it down to a third of the balance. This is because credit reporting agencies score you on the way you manage your credit, not how fast you can pay off your balance. Or, if you cannot do this ensure that you do not miss the minimum payment. This cannot be stressed enough; if you miss the minimum payment then you will see a reduction in your credit score which will ultimately destroy your chances of obtaining a home mortgage loan.
Even with just a few months of paying using your credit card and paying it mostly off, you will start to see your credit score go up which will greatly increases your chances of obtaining a home loan. The subject of home loans for people with poor credit has become increasingly paramount in the public mind set in recent years, particularly in the years since 2008 after the global financial crisis which stemmed from home loan defaults.
Not surprisingly, this has made lenders a lot more risk averse than in the past, but don’t be too alarmed. With just a few simple steps you can obtain a home loan even with a less than perfect credit rating.
Who is to Blame for Bad Credit
America finds itself in an economic mire, and some would say that we got here due to, among other factors, home loans for individuals with bad credit. But who is to blame? Are we to blame the banks who approved these mortgages? Are we to blame the financiers who devised sophisticated ways of trading away risk from high risk loans (e.g. credit default swaps)? Or are we to blame the people who, in their pursuit of the American dream, temporarily lost sight of the hard realities of life and decided to ‘take the plunge’ and acquire a home which they could not afford?
These are difficult questions indeed. Let’s look at it from the perspective of the bankers. They run their equations through a spreadsheet and come up with a cold, hard assessment of the profitability versus risk of a home mortgage. Anything that meets their requirements of such warrants a mortgage to be given. They are pretty much emotionally distanced from the very real possibility of a family ending up without a home in, for example, 25% of the cases. So, in a sense, they are simply doing their job – which is to make money.
The financiers, on the other hand, can decide that a loan is not worth the risk AFTER they have already secured it, so then they are in a pickle. Not to worry, the mighty credit default swap can be used to sell the risk of a given high-risk loan to another, less risk-averse entity. Indeed, this seems like an efficiency-increasing financial instrument, and may indeed be useful. However, if anything is overdone, then the points of failure increase in number, and if done egregiously enough, this may destabilize an entire economy (or more).
But the personal responsibility of any one financier on the economy today is generally low with regards to home loans for people with bad credit, unless they were among the elite that looted Wall Street. But perhaps the answer lies in how some view the American Dream itself. It is not just about ‘getting one’s due’ (whatever that might mean anyway), but it is about self-reliance and self-dependence.
And in that, it seems that the families who took on sub-prime home loans for people with a less than average credit score were wronged the most. Rather than relying on themselves to pay off their rent in a more affordable home, they relied on an external entity – the bank – to provide temporary shelter from the deluge of money necessary to buy a more expensive home. The lesson? Rely more on your own resources and less on credit.