Getting Mortgage Loan With Bad Credt

Published: 17th September 2009
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A few years ago this would have been a simple process. But, since the mortgage meltdown someone trying to get a mortgage loan when they have bad credit has become much more difficult.



Mortgage loans for bad credit are still available but not near as plentiful. Even FHA has tightened up on their credit score requirements for even applying for a mortgage loan. At one time to obtain an FHA loan there were no credit score requirements. Today one must have at least a 580 score to even apply. Even then you will have a tough time getting your loan approved. To have a better chance of approval one should strive to get their credit score to at least a 620.



What Makes Up Your Bad Credit?



If you have bad credit but still want to buy a house, then first take a look at what is causing your credit score to be so low.



If you have not gotten a copy of your credit report to see what is being reported to the credit bureaus then that should be your first step.



Some items on your credit report may not even be your or may be incorrectly reported. I see this quite often on applicant's credit reports.



Tri Merge Credit Report



Don't get a copy of your credit report from just one of the credit bureaus. Get a tri merge credit report that shows your credit rating with all three of the major credit bureaus (Experian, Equifax and TransUnion).



Every creditor does not report to all three of the credit bureaus, therefore you may miss some items that are causing you problem if you do not look at a tri merge credit report.



If you find items that are incorrectly reported then send in a dispute letter to the bureaus where that items is being reported and get the item cleared or corrected. A dispute will normally take 30 to 60 days to get cleared. Once the credit bureau receives your dispute letter they contact the original creditor to verify your claim and the creditor has 30 days in which to reply to the credit bureau.



Whats My Credit Score



Now that you have your credit report from the three credit bureaus then you need to know what your middle score is. For instance, if your Equifax score is 580, your Experian score is 655 and your TransUnion score is 624, then you middle score is 624.



So, what you need is a middle score of 620 before the mortgage companies even want to look at the rest of your credit. You may still have some bad credit that may be a problem in getting a mortgage loan approved.



Home Loans With Bad Credit



If you have managed to get your credit in decent enough shape to have at least a 620 credit score then you may still have some credit problems that might prevent you from getting approved for that home loan.



If you just have collections then you may be o.k., especially if they are small amounts or for medical bills.



However, if you have things like a judgment, delinquent student loans or tax liens then you will have to clear these up before you will be able to get approval.



Worked to get your student loans deferred and make sure that the status gets reported to the credit bureaus so it will reflect correctly on your credit report.



Call about the judgment and ask what the creditor would settle for if you paid the debt in full. You should be able to save a good bit on what you owe.



Private Investor



All of the above applies if you are attempting to get a home loan from traditional mortgage lenders. Another option is to find a private investor that would be willing to review your credit history and take a chance on you. Normally this approach will cost you a lot higher interest rate and probably have to pay a larger down payment in order to show that you have a vested interest in fulfilling your part of the bargain.



Summary



In summary, getting mortgage loans with bad credit is much tougher to do today than it was just a few years ago. And, it really is in your own best interest to improve your credit scores because the approval process will be much easier on you and you will save a lot of money by having a lower interest rate.



Jackie has been publishing online for several years on a variety of subjects and interest. Come check out her sites related to this subject: at How To Improve Credit Score and Check Credit Score.


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