Ideally you should strive to repair your credit in order to qualify for a better deal on any type of loan. In most cases, however, bad credit alone will not prevent you from finding a mortgage loan or purchasing a home.
The first thing a lender will want to know is what type of credit you have. Be honest, upfront and don't be embarrassed - lenders see this every day. The next thing the lender will do is pull a credit report on you from all three major agencies. The purpose of this is to get an exact credit score, also known as a FICO score. Anything less than 620 is considered bad credit.
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Once the lender has assessed your unique credit situation, they will be able to present you with the options available. Unless your credit score is simply awful and you have had bankruptcies, foreclosures, and repossessions in recent years there is likely a bad credit mortgage loan program available for you.
Typically you will be offered a program that has a significantly higher rate of interest compared to market standard. You may also be required to put down a sizable down payment and carry private mortgage insurance on the loan. As with anything, as the risk to the lender increases, you can expect to pay more for the loan.
It would be in your best interests to attempt to clean up your credit as much as possible prior to applying for a home loan. Every few points in your FICO score count and while paying off a credit card or two may not seem like it would help much, sometimes small things can make a major difference.
You will also find that there are lenders who specifically deal with bad credit loans. While seeing an "expert" may seem like a good idea, the rates you get may or may not be any different than what a traditional lender would offer you. As with anything, there are good lenders and there are some shifty lenders. Choose wisely and do your due diligence for your protection.
Sometimes, the best bet for getting a bad credit home mortgage loan is to go to the bank where you keep your checking and savings accounts and apply with them. If you have a good history with your bank, maintain a positive balance and have not bounced checks, they may be willing to work with you. As an existing customer, you can sometimes get a better rate even if it's not a particularly "good" rate by speaking to your own bank directly. If that option doesn't work out, then you could see a bad credit lender as a plan B.
Having bad credit won't prevent you from owning your own home, but it will cost you tens of thousands of dollars more over the life of your loan. Your credit score changes as time goes by and bad credit can be corrected. You should do your best to repair and maintain good credit with the goal of refinancing in the future to get a better rate.
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