How to Get a Bad Credit Home Loan

Getting a home loan is not easy when you have bad credit. Of course, you probably already know that. Banks are in the business of making money and when they lend money to people who have bad credit they know they are taking a larger than normal risk and may not receive the payments that are due them. For this reason, it is more difficult to get a bad credit home loan or a bad credit remortgage than a normal mortgage.

However, getting a loan with bad credit is not impossible. There are some steps you can take to improve your chances. By learning how banks make their lending decisions, you will equip yourself with the knowledge you need to get a home loan, even if you have bad credit.

One of the things you can do to help get qualified for a bad credit mortgage is to explain why your credit is bad. If you have a good explanation, your bank may decide to take a chance on you even though your credit rating doesn't merit it. This is especially true if you were involved in a car accident or other misfortune that prevented you from working.

If you can prove that your negative credit rating was a result of the accident, many times the bank will disregard the negative ratings that were incurred during the period that you were unable to work and even while you were struggling to get caught up after you returned to work. Of course, you will need to be working again or have some other source of income in order to qualify for a mortgage.

If you can save a lot of money to put toward the purchase of your home, you may find that the bank will be willing to accept more risk than they would otherwise. By putting a sizable amount down on your home, you show the bank that you are serious and willing to put your money where your mouth is. If you lose the home, you will be losing your own money as well as theirs. Bankers know that people are more likely to pay their payments if they have something to lose. This will work to your advantage when you apply for a bad credit mortgage.

Most mortgage lenders use certain guidelines to determine eligibility for a home loan based on a person's income, the amount of the proposed mortgage payment and current debt payments. If you do not stay within these guidelines you are very likely to be turned down when you apply for your home loan.

To qualify for a mortgage with most banks, your mortgage payment cannot exceed 33% of your income. Also, your total monthly debt payments cannot exceed 41% of your income. Debt payments include your mortgage, car payments, the minimum payments on your credit cards and the monthly payment on any other personal or secured loans you may have. The debt ratio does not include variable expenses such as groceries or utilities.

If you are willing to consider other types of loans besides the standard 30 year fixed rate mortgage, you will have a better chance of finding a loan that you can qualify for. For example, some lenders will accept borrowers with a lower credit score if they are willing to take a 40 year mortgage.

Bad credit mortgages are attainable, especially if you have a reasonable explanation for your negative credit rating. If you can put down a good sized down payment, you will find it much easier to qualify for a mortgage or remortgage with bad credit. Staying within the guidelines for your debt and income ratios will make it much easier for the bank to approve your request for a mortgage.