Your past decisions may have led to bad credit and made you believe that your owning a home is impossible. But give this a rethink as this is definitely not the case. More and more lenders are opening the door to those that have poor credit because they think they deserve a second chance. Unlike you, your neighbor who has excellent credit will get a mortgage quite easily. But it is definitely not the end for you.
Mortgages and Bad Credit
Twenty years ago those with bad credit would be hard pressed to be approved for a mortgage loan. As of today, it is a common sight since lenders have made their rules and regulations pretty flexible. This helps them attract a wider audience. But with bad credit, you may still have a tough time finding a lender. If you are clear on what you expect you will find this process a lot easier.
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To start with, be prepared to get rejected by many people before you are finally accepted. When you apply for a loan there are going to be several things that you will need which include: your name, your address, your social security or tax payer identification number, as well as your last tax return. Depending on the lender, you may also be required to provide proof of your bank account. Since you have bad credit you may also be asked to get some additional references. You will be able to obtain letters of credit or reference from most utilities, which will basically state that you are a customer and you pay your bill. If you have loans from your school you may attain a letter of reference from them. Even personal references from people who have lent you money in the past would suffice.
Generally, even if you have a bad credit you still manage to get approval for a mortgage. If not you may ask someone to co-sign with you. A co-signer is allowing for you to borrow their credit score to help you get approved for the loan. While this seems like a simple answer, you need to remember that if you default on your mortgage you are not only hurting your credit, but the credit of your co-signer. Due to the risk involved one should always discuss this with anyone you are asking to co-sign on the loan.
Down payment is another way to obtain a mortgage loan with bad credit. Sometimes you will need to have as much as 15 to 20% of the sales price to put down on the home. This shows the lender that you are serious about keeping the home and when they know that you have invested they assume that you will keep your end of the deal by making timely monthly payments. If you don't have a co-signer or a down payment you will find that you cannot secure a good rate of interest which you could have with either of these two. If you don't have a co-signer and you need a loan for 100% of the purchase price you can expect for your interest rate to be as much as 5% higher than the average.
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