Applying for a mortgage when you have bad credit can be very difficult, however there are some things that can be done that will make it easier. There are three factors that banks like to see a borrower has, these are, a low debt ratio, a good credit history, and a stable income. If any one of these is missing then the borrower will face a tough time in getting a mortgage. In the rest of this article there are some tips you should consider before applying for a bad credit mortgage.
As already stated the lenders look for a good credit history (and a high credit score), there are any number of reasons why you may not have a good credit history or have a low credit score, however the reason will have no bearing on the lender as you will have trouble getting a loan. So the first step you should take is to get hold of your credit report from each of the credit rating agencies, this will show where the problems with your credit lie.
The next thing to do is to try an improve you credit score as much as possible. Do this by making sure you make any outstanding payments on time and in full each month, if there are any errors on your credit report challenge the report with the credit agency. Doing this will give you a much better chance of obtaining your mortgage and at a lower interest rate.
The most common reason for bad credit status is usually the fact that all of your credit cards are constantly at the credit limit and you only make the absolute minimum repayment each moth, along with missing payments etc. If this is the case you are almost certainly going to fail in you attempt to get a mortgage, or if you do the interest rates will be very high. You would be much better of waiting until you credit score improves before applying.
Now having been all negative so far in this article there is some good news if you are in this position and live in America. There is a government deal called FHA Mortgages which is designed to help those who do not have as good a credit history or score as they would need for a mortgage from a bank to be able to apply for a mortgage at a low rate of interest. And the loans can be taken out with a low down payment, which can be a great help to first time buyers.
The main criteria for this deal is that you can prove that you can afford the monthly repayments, other criteria are the value of the house and the size of loan requested. This loan is restricted to the county that the house is in, and not every area has this scheme in place so do check carefully. However if you do qualify for this type of loan it will be a great relief to you and will also help to go towards improving your credit history and score as you make each of the monthly repayments on time.