Bad Credit Loans Available to Homebuyers

While borrowers with poor credit are considered risky and thus are at a disadvantage, there are options for homebuyers. The fact that you have gone through foreclosure or filed for bankruptcy doesnít mean that your application will be rejected by each and every lender.

Applying after Bankruptcy

You are unlikely candidate for a home loan if you just declared bankruptcy. The waiting period is 4 years if you want to get more favorable interest rate and terms. If you canít wait 4 years, consider applying with a hard money lender. The only problem is that they offer very high interest rates. Hard money lenders also require a substantial down payment in the range of 20 to 35 percent. They often assess high prepayment penalties. Even if you are applying with your local bank, you may have to put at least 20 percent down.

Borrowers with Poor Credit

If you have tarnished credit or no or little exposure to credit, getting a mortgage or home loan will be more expensive. Financial institutions offer higher interest rates to offset the risk of default. Make sure you can afford to make the monthly payments. If you face foreclosure, your credit score will be affected. One option is to rebuild your credit before applying for a bad credit loan.

To improve your chances, open a savings account and deposit cash on a regular basis. Save at least 10 percent for the down payment. Pay your utility bills on time and avoid late credit card payments. Financial institutions also require that applicants show steady employment.

Alternatives to Traditional Lenders

Seller financing is one alternative to brick-and-mortar banks. Common features include fast closing, flexible down payments and terms, and attractive interest rates, and no qualifying. This is an option for customers who are turned down or are not satisfied with the terms offered. It is a type of a contract for deed or land contract between a buyer and a seller. The purchase of the real estate is financed by the seller in this case. The wrap-around contract is one type of arrangement whereby the agreement also covers the existing mortgage. For example, if the sales price of the property is $150,000 and the buyer puts down $15,000, he agrees to pay the remainder ($135,000) in installments at an agreed interest rate. The interest rate on the underlying mortgage and new loans for people with poor credit are different. For example, the underlying mortgage is $80,000, payable at 6 percent while the new loan of $70,000 is payable at 6 percent. In this case, the seller earns plus 1 percent interest on the existing mortgage.

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