Finding a Bad Credit Home Loan

If you have poor credit and you're searching for a home loan, you may feel like the deck is stacked against you before you even begin. While it is true that bad credit borrowers must generally jump through more hoops and do more research than good or excellent credit borrowers, if you study the mathematics of your loan transaction and proceed carefully and courteously through negotiations, you should be able to find something that fits your bill.

Before you start comparison shopping lenders, figure out what your credit score is. Remember that this is a rather arbitrary number decided by private companies, such as Experian, TransUnion, and Equifax. These institutions, commonly referred to as the credit bureaus, are not part of the US Government.

You could start a credit bureau tomorrow, and it would have the same private status as the three “major bureaus.” The difference between a “mom and pop” credit bureau and the three aforementioned bureaus is that lenders the countrywide take the scores of those bureaus very seriously.

Obtain a free credit report, and contest any illegitimate or moribund charges. Pay off any debt, or negotiate past due notices with your creditors. Stockpile savings so that you can handle a down payment or additional points upon your mortgage (which you will likely have to countenance if you're a bad credit borrower).

Comparison shop, but don't “go crazy.” If a lender sees that you're looking around at 20 to 25 other lenders, he or she won't take your request seriously. Loan officers earn their money via commission -- they don't want to do work unless they think that they will be rewarded relatively soon. Plus, there is not a substantial advantage in looking at more than four or five different lenders, assuming that you've parsed their qualifications carefully.

Get your debt to income ratio down as low as possible before home shopping. Lenders will consider your DTI in conjunction with your income history, your asset forecast, your credit score, your home buying location, and probably a dozen other factors when deciding how much money you qualify for.

Finally, don't get “suckered” by lenders into buying more points at closing (or down the line) than you need. Talk to industry professionals about what's reasonable for your situation, and read contract fine print carefully.