Examining Mortgage Loans for People With Bad Credit

It is possible for people with bad credit to get mortgage loans.

Examining Mortgage Loans for People with Bad Credit

When someone applies for a mortgage, the lender is going to look into everything about their financial situation - their credit rating, the amount of debt they carry, their income, their tax returns, employment record, and the cash they have on hand. Mortgage loans for people with bad credit have stricter qualifying criteria than mortgage loans for those with a solid credit rating.

One way to get mortgage loans for people with bad credit is for the mortgage applicant to have more available cash reserves than typically required in a conventional mortgage loan. Cash reserves can compensate for a poor credit rating. A high amount of cash availability will likely improve the chances of a mortgage applicant with a low credit score getting their mortgage loan application approved. For example, if someone is looking to purchase a home that costs $150,000, and can put down a 25% cash deposit ($37,500), they will be considered less of a risk because of the cash the borrower has invested in the deal. As a result, the lender will consider a loan default unlikely.

Always examine your credit report. Don't take anyone's word for what's on your credit history; request your credit report and go over it scrupulously. Even removing one credit error on your credit report can save thousands of dollars over the term of a mortgage loan. Report any errors to the credit report company and insist that the error be removed.

Higher interest rates.  Although they are harder to find than before, there are lenders and lending institutions willing to issue mortgage loans for people with bad credit, but the terms of the loan will be substantially stricter than mortgage loans for those with a solid credit rating. The interest rate charged will be significantly higher in the case of mortgage loans for people with bad credit, which will inflate both the monthly mortgage payment and the total amount the borrower owes the mortgage company in the end.

While there is no question that obtaining a legitimate mortgage loan with bad credit is difficult, it's not impossible, and there is an upside to the stricter lending terms. Over time, the borrower can use the mortgage loan to re-establish solid credit.