Introduction
Applying for a home loan with poor credit can be frustrating and seem hopeless. It may take a lot of work, some repair to your credit history, and filling out a lot of paperwork. Do not give up just because you have been rejected once or twice. Be persistent and ask questions on how you can better your chances of getting approved. It will be worth it in the end when you find the home you've chosen to buy.
Step 1
If you have delinquent accounts on your credit report with in the last two years, you will need to set up payment arrangements with the collection companies. Poor credit from more than two years ago will not always be frowned upon. It will also be a great idea to get a written statement showing that payment arrangements have been made. Also, make sure other accounts are being paid on time.
Step 2
You will need to make sure you have held a job for two years or more. It is best if you have been at the same job for the past two years, if not then make sure you have at least been in the same field of work. This will be important to the lender, to show you have means of income to make the payments for the loan you are applying for. A great job history will help the lender look past your poor credit history.
Step 3
Make sure you are paying your current rent or mortgage payments on time. You will need to show the lender you have been responsible with making your payments on time for the past two years. This will show them you are serious with becoming a reliable home owner despite your poor credit. If you are renting, ask your landlord to write you a recommendation letter.
Step 4
Having poor credit will most likely require you to have a down payment for your loan. You will want at least 3% down, maybe more depending on your lenders requirements and depending on how poor your credit is. Now is a great time to start saving up for the down payment if you haven't already. To do this you can sell off a few items that you no longer need. You can pick up extra hours at work or try getting a part time job.
Step 5
Now you will want to start finding a lender. With a poor credit history, there are not always many options when it comes to finding a lender. It may be best to apply for an FHA loan (Federal Housing Administration). Their requirements are usually a little easier for approval. You will still need to meet a certain credit score, but not as high as other lenders. This will also be a great option if you are a first time home buyer with poor credit.
Tips
- Pay off or set up payment arrangements for delinquent accounts on your credit report.
- Obtain a full time job for at least two years.
- Pay your rent or current mortgage and other bills on time.
- Consider a rent to own or lease to own option.
- Don't rush into a purchase, take your time and if you are not ready now, follow these steps to prepare yourself over the next two years to be ready.
- Try finding a lender that will do an underwriting loan (a loan not solely based on credit score and poor credit).
- Don't be afraid to ask a lot of questions.
