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Bad Credit and First Time Home Buyers

Exploring Home Loans for Bad Credit Holders

It is interesting to note that even in the current situation, it is possible to easily find institutions that offer home loans for those who are afflicted with bad credit history. A number of online loan providers are ready to help the bad credit holders and willing to finance their home purchases despite their current credit situations.

buying first home
buying first home

Primarily, there are three varied kinds of bad credit loans, which are specifically designed for the first time home buyers. These include the FHA loan, sub-prime mortgage loan and VA mortgage loan.

Primarily, the new home buyers who are saddled with low or bad credit scores, usually find it difficult to qualify for the equity loans, as their “loan to value” is significantly high. Nevertheless, here are some important tips for such first time home buyers.

Exploring Variable Types Of Bad Credit Loans For First Time Home Buyers

FHA loans are excellent since they let a first time home buyer enter the home of his dreams with a 3.5% or lower interest rate. There are specific assistance programs for the down payments, which are quite helpful. There are also different types of housing units that entice the first time home buyers to move into them.

VA mortgage is for the veterans who are in the armed services. Over 29 million veterans are eligible to apply for the home financing of the VA. Many a time, these loans even permit a first time home buyer afflicted with bad credit to buy a home with nil upfront fees.

Additionally, these loans offer a lower rate of interest. This is a viable kind of loan for those who are in active duties, reserves and are married.

Finally, the sub-prime mortgage is specifically for the bad credit holders who wish to buy their first home. Although the loans sport a higher interest rate, approval is easy and applicants can get into their dream homes without much effort.

Important Pieces of Advice For Bad Credit Holders Desiring To Buy Their First Home

To qualify for these loans, a bad credit holder should try to minimize his monthly expenses, which in turn helps him to achieve better and more affordable mortgage payments. It is highly advisable that he contact a mortgage lender who effectively knows about the program parameters essentially designed for the first time home buyers tagged with bad credit.

Address Your Credit Before Your Mortgage

One of the hardest things to face when looking at obtaining a mortgage is the seemingly undeniable truth of our credit scores. And while mortgage rates and opportunities are most definitely tied in with credit scores, that doesn’t mean there is no hope or that you are necessarily at the mercy of your credit score.

Taking the First Step

This is perhaps the hardest: look at your credit report. Even people with excellent or near excellent credit ratings would always like their credit to be just a bit better. However, it is not simply your credit score that you should be concerned with. Take the time to analyze your credit.

Look for Mistakes

We live in a very fast paced, digital world. Mistakes are an unavoidable part of the modern age and they have an effect much faster now than ever before.

However, they can still cause just as much problem, particularly if you don’t know that they exist. Debts that have since been paid off but were never actually removed from your credit reporting can have a negative impact, as well as incorrectly assigned debts.

Many people find charges and balances against them that were incorrectly assigned and belong to someone else. While these are often innocent mistakes, if you are not aware of them you cannot address them.

Make sure to address or dispute any such mistakes immediately and in writing with either the credit bureau, the company claiming the debt or (most prudently) both. Collection claims can follow you for up to ten years, even erroneous ones, so it is important to remove them as soon as possible.

Attack Your Credit Cards

Credit cards seem like a necessary evil nowadays, some companies require you to purchase only via credit cards or offer incentives for using one. Credit cards are a good way to rebuild credit as well. The first thing to do is to limit your cards.

Too many cards are distracting, looks bad on a credit rating, and excess money is going towards paying interest rates instead of principle. Once you are able to reduce the number of cards you use, work towards lowering the principle.

Maxing out or nearly maxing out a credit card looks bad as well, and will make mortgage lenders think twice about lending. Many credit agencies recommend keeping a principle of around 20% on the credit card at all times. This shows active, but managed financial behavior.

Avoid Credit Hits

Any large purchase, such as a mortgage or an automobile loan, may require a credit check. Repeated credit checks hurt your credit in two ways: the first is that a credit check negatively impacts your credit rating.

Numerous checks in a short period of time chip away at your credit score. The other disadvantage to numerous credit checks in a short period of time is that each check is like a little red flag.

Shopping for the ideal mortgage rate or automobile loan is extremely important, but bouncing from agency to agency reduces the appearance that you are serious about a mortgage.

Any lender is willing to spend time to discuss a mortgage with you, however, the service and attention you receive may be a reflection (rightly or wrongly) of how you are perceived.

5 Places Where You Can Get the Money for Your New Home

You’ve done an exhaustive home search, narrowed down the list, and then singled out the one you want to call home. You’ve decided how much you are willing to pay for it and draw up an offer with your real estate agent.

You’ve even painted a mental picture of how you will decorate the living room and kitchen. Now you have only one hurdle to clear before you get to take the obligatory picture in front of the “SOLD” sign in the front yard: Coming up with the money!

Financing a home purchase can be challenging, but with a little motivation, and if necessary, a little creativity, you can come up with the money you need. Here are five places where you can get the money for your new home.

1. Seller Financing

Seller financing is a great option for homebuyers who are struggling to get financed through a traditional lender. All you need is a seller who owns his or her property free and clear and who don’t mind receiving monthly payments on it instead of a lump sum.

Believe it or not, they are out there, and a good real estate agent can help you find them! This will allow you to avoid the hassle of working with a lender and the seller will end up getting more money for their home over time.

2. Assuming an Existing Mortgage

Instead of applying for a mortgage on your own, you simply take over the seller’s existing mortgage and start making the monthly payments just as the seller did. The qualifications required to assume an existing mortgage are often more lenient than they are for obtaining a new one.

Often when assuming an existing mortgage the seller will be in financial distress and the bank will be more than happy to give a lower rate to anyone that wants to assume the mortgage since they will lose money if the home needs to be foreclosed. This means you will often end up getting an amazing deal on your home.

3. Renting to Own

This is a great option for buyers who may not qualify for traditional financing now, but expect to be able to within a few years. It’s similar to seller financing. You make monthly rent payments to the seller for a specified “lease period.”

A portion of that money is usually set aside and placed in a down payment fund. At the end of the lease period, you put that saved money “down” and obtain your own mortgage!

Just be careful with this option and make sure that you understand what will happen to the money that you put down on the home during the renting phase since some sellers might not give the money back if you need to move or change your mind.

4. Seller Second

If coming up with a down payment is the challenge, this is an option to consider. The seller provides a second mortgage which covers your down payment so you can get the first mortgage. Then you would make monthly payments to the seller to pay off the loan.

While this can be an expensive option when it comes to making increased payments over time, it is a great way to purchase a house if coming up with a down payment in the near future is impossible.

5. Credit Unions

If you’re not getting anywhere with traditional banks, try a credit union. Unlike big banks, credit unions are controlled locally. A credit union in OKC, for example, doesn’t have to abide by rules being handed down from New York or Charlotte.

A credit union manager may be able to review your situation on a more personal and individualized basis and issue you a loan, even though banks have turned you down. This is a great way to get a reasonable loan when you can’t find one from anyone else.

Money Saving Tips In The Real Estate Market

When you are looking to buy a home, you need to save as much money as possible. It is not a cheap purchase to buy your own home.

You will be spending hundreds of thousands of dollars, and you need to look for every method at your disposal to save as much money as possible on the deal. If you are in the real estate market, then follow these money saving tips to get your new home for as little money as possible.

Improve Your Credit

The first key to saving as much money as possible when you are in the real estate market is to make sure that your credit score is as high as possible. When you have a good credit score, this will allow you to get a mortgage that carries as low an interest rate as possible.

Even just a small increase in your credit score can save you thousands of dollars over the life of your home loan, which means you need to do everything possible to improve your credit score as much as possible before beginning the mortgage loan application process.

Save Up a Bigger Down Payment

As well as lowering your interest rate with a good credit score, you can also lower it by putting down a larger down payment on your mortgage loan. Most lenders will give home buyers tremendous savings on their mortgage loan interest rates if they put down 20 percent when they take out their loans.

This is a big aspect and a relatively easy one to be constantly working on. Even finding a home you are interested in can be a lengthy process, continuing to save and keep your eye on the prize will help you build up that fund and save more and more money.

Find a Property at a Discount

Looking for properties that have a flaw that will lower their price is one of the smartest ways to save money on new homes. Utah real estate experts recommend putting some work in on the homes they buy.

That way they will be able to score substantial savings on the purchase price of the properties they are considering. It also gives them the opportunity to customize their home and add other valuable features that can help with the overall value of their home.

Get a Great Broker

Look for the best real estate broker you can find to get the best deal on your real estate purchase. The best brokers will take a very small commission, and they will help you to put in the lowest bid possible to save as much money as you can on the purchase price of your new home.

If you follow these tips, you will be able to get a new home for the lowest price possible. Make sure to know your stuff and put in the time to do research and learn as much and the real estate market and brokers in your area. When you follow the right shopping methods, you will have no trouble getting a great buy on your new home.

It’s Time to Make Your Home Your Castle

If you are renting, then your home will never be your castle. It will always and forever be someone else’s castle. When you purchase your home, however, you will revel in the glory of knowing that the home is yours to truly enjoy for the rest of your life.

Buying a home can be a complex process, but it is certainly is possible. Go ahead, start dreaming about your new home and prepare yourself for the journey ahead.

Meet with a Mortgage Broker

There’s not much sense in going out and touring homes before you meet with a broker and see how much you can borrow. A good mortgage broker can give you a rough estimate of what you can afford, so you know what areas to look in.

Remember to keep your mortgage at a comfortable amount, so you can still afford to take vacations, pick up nice things, and feed the family.

You can find a quality mortgage through various groups like building societies, banks, and insurance companies. Brokers usually work with finance houses and specialized mortgage companies. If you already have a relationship with your banker, then that may prove a good starting place for you.

Once you have made your wish list, found the perfect property, and submitted your offer, you will need to start assembling paperwork for the lender. Terms can vary from one agency to the next, but there are some basic industry standards you may use as guidelines.

Identification, Please

Any potential lender wants to know exactly who they are dealing with. You can expect to be asked for your photocard driving license along with proof of address. This is not just a requirement of the lender; it’s called for in the European Money-laundering Regulations.

Earnings Verification

The lender needs to know that you have the ability to repay this loan, and that means confirming your income. Only original copies of documents will be accepted, so you should start gathering your income verification.

Some lenders will want to see bank statements, and you will probably have to show payslips, as well. It’s also possible that your lender will ask for a letter from your employer.

In general, you will be required to produce payslips for a three month period. If you are self-employed, however, then you will be expected to produce income verification for at least 12 months.

You could use a certified chartered accountant’s report or an accountant’s own certificate on their letterhead. The Inland revenue SA3203 form would also be acceptable.

Down Payments

Lenders are taking a risk with any mortgage, so they want you to have a stake in the property, as well. Most lenders have minimum requirements regarding the size of your down payment.

Depending on your credit and the type of loan you take, you could be limited to a loan-to-value ratio of 75 to 95 percent. If you exceed the LTV limit on a mortgage, then you will be required to pay mortgage insurance.

High Credit Scores

If your credit score is low, then you might want to hold off on buying a home and work on raising the score. While borrowers with low scores can get mortgages, they will carry higher interest rates and fees.

Your mortgage broker can advise you on whether you should proceed with the application or take the time to repair your credit first.

There are many facets to buying a home, and the paperwork can certainly be the most tedious. While you may not relish the idea of taking in stacks of payslips and submitting bank statements, it’s a necessary part of the process.

Start the mortgage application process as quickly as possible, so you won’t have to wait for it to be approved after you have found your new castle.

Warren Paine

Warren is the senior mortgage loan officer who has worked in mortgages and loan industry since 1995. He study in Harvard and major in Finance with a Bsc. Honor Degree. He possesses a Paralegal Certificate as well.

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