Wednesday, September 30, 2009

Home Loan Advice For Folks With Bad Credit

By Daniel Michael

In the course of their life, most people will want to own their own home. Because of the price of homes, it is necessary to secure a loan in order to pay for your home. If you have a steady income and a good credit history, it is easy to secure a good home loan with a low interest rate. However, if your credit history is bad, it can be much more difficult to secure a home loan.

First, you should figure out what your credit score is and if you are eligible for a home loan. There are two ways to go about this. Many online sites offer free credit reports. It might even be that your bank will offer a yearly credit report free of charge. If this service is offered by your bank, you should definitely do a credit check. However, beware of many online credit report companies. In order to learn your credit rating, these sites need access to your personal financial documents. Don't provide any sensitive information to a company you don't completely trust.

The other way to learn if you are eligible for a regular home is by simply going into a bank and applying for a loan. It is best to do this before you start to go house hunting. If you are pre-approved for a loan of a certain amount then you will know your house buying budget.

If you're not pre-approved for a regular home loan, you may be eligible for a bad credit home loan. Bad credit home loans are designed for people with a credit score of less than 620 or who have been late on their existing mortgage payments. Bad credit home loans are more risky for a bank to take, and so they charge you a higher interest rate to compensate them for their addition risk. Bad credit home loans can be almost double the rate of regular home loans. Currently, home mortgage rates are around 5.5% and bad credit rates are between 10% and 12%, depending on your lender. If you are able to raise your credit score, you might be able to eventually refinance your mortgage at a lower rate.

Sometimes people aren't able to qualify for even a bad credit home loan. In that case, their only recourse is to find a cosigner for their loan. The cosigner assumes financial responsibility for your loan in case you default on it. Some people find the cosigner option embarrassing. However, depending on your financial and home owning needs, a cosigner might be a necessity. For example, a newly married couple just out of college with a new baby on the way will need a home for their new family but may not yet have a good enough credit history to qualify for a loan on their own. In that case, a parent is often a good choice for a cosigner.

If you would like to find more information on bad credit home loans, you can visit:

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