Bad Credit. Is there hope?
Life happens. Job layoffs, family emergency, pay reduction and other events can create problems for your credit. Lenders consider your credit score a major factor in deciding both on whether they will give you a loan, as well as what the rate will be. The good news is that there are many more options today to get you a bad credit home loan than there have ever been in the past.
Lenders literally compete with each other to give you a loan. There are more competition in the market today to give people with bumpy credit a home loan than you can imagine. There are limits however. We will go through them in a minute.
How to get a home loan for people with bad credit
The first and most important thing for you to find out is to know what your credit score is. Don't know what your Credit Score is? Click here.
Since lenders work primarily off your score, knowing what it is will help you determine if you can get a loan. Lenders do not just look at your credit score though. They also look at what is on your credit report. For example, a Chapter 13 bankruptcy that is discharged does not matter much, but a Chapter 7 bankruptcy that was discharged last month will have a huge impact on your ability to qualify for a loan.
Guidelines to help you understand how a lender looks at you
Ever wondered what items on your credit will have the least impact? Below is a list of bad credit items, also known as derogatory items, and how a lender views it. These are general guidelines, it will differ from lender to lender. The list below assumes that you have a 600 middle score or higher.
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If you already have a mortgage, then one 30 day late in the last 12 months is okay. This is not an encouragement to not make a payment. 30 day mortgage lates are treated very seriously by lenders, and it certainly will affect your score. All this means is that if you had a 30 day mortgage late, that it will not necessarily stop you from getting a mortgage.
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If you need both borrowers' income to qualify, and the primary wage earner (the person that earns the most) has a 580 score or higher, then the coborrowers score can be ignored, regardless of how low it is.
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Dismissed Chapter 13 bankruptcies are treated as a non-event (Pretend it didn't happen)
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Generally it needs to be two years since you have had a Chapter 7 bankruptcy. Four years is a more common requirement.
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Consumer lates (30 days or more late on credit cards, store cards etc...) are generally ignored
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Collections are generally ignored, and judgments older than two years are generally ignored. Judgments less than two years old may be allowed to remain open up to a maximum of $5,000.
The above are some samples and will not be true for all lenders, but are general guidelines that works with most lenders that give home loans to people with bad credit. When you register to let lenders compete, let them work with you to determine whether you qualify, and find you the lowest rate.
Bad credit mortgage. What is the down payment required?
Down payment requirements are credit score driven. Here is a table that gives some general guidelines:
| Credit Score |
Down payment required |
| 600 | 100% Financing allowed. This means you do not need a down payment. Closing costs still apply, but the seller can pay up to 6% of the purchase price on closing costs. This way you can get a bad credit mortgage with literally no money out of pocket. |
| 580-599 | The mortgage company will provide financing up to 95% of the purchase price. They will allow the seller to carry a private second mortgage of 5% so that it can still be a no money down transaction for you. Or you can put down 5%. |
| 550 - 579 | The mortgage company will provide financing up to 90% of the purchase price. They will allow the seller to carry a private second mortgage of 10% so that it can still be a no money down transaction for you. Or you can put down 10%. |
| 500 - 549 | Financing up to 75% of the purchase price is available. This means that you need to put down 25% of the purchase price |
| 499 and below | Mortgage financing is not available. Work with a reputable credit repair company to improve your score. |
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