Almost every earning American dreams to buy a home of his/her own. For this, most of them do many pre-planning, but for some buying a house is a dream far-fetched especially to those with bad credit. However, with recent advancements, things seem to taking different shapes as a result of which people having bad credit scores can also avail house loans under good interest schemes as well.
You would be happy to know that, people suffering from bad credit, bankruptcy or foreclosures, now can easily get housing loans against bad credits. The only drawback is that the borrower has to pay little more than one with shining credit. Apart from all this, there are few other ways by which one can receive housing loans, even if he/she has a bad credit.
The Waiting Period (Foreclosure or Bankruptcy)
If you are planning to apply for a loan after bankruptcy, you need to keep a few things in mind.
- The minimum period of bankruptcy filing is 7 years, which can extend to 10 depending on the credit report.
- For better rates to confirm, you have to wait at least 4 years after bankruptcy filing.
- In case of foreclosure, you may even qualify at 3.5% after two years of the foreclosure.
- Hard money lenders often offer loans after six months of bankruptcy or foreclosure, demanding 20 to 30% down payment. The interest rates may also hike in such cases, tagged with prepayment penalties.
- Sub-prime lenders do not offer 100% financed loans any more.
Improve Your Qualification
- Apply for a credit card. It is not a lengthy or hectic process. In fact, bankruptcy offers you a chance to make a fresh start. The lender is aware of your debt free record, moreover you cannot file bankruptcy for next 7 years.
- Maintain a stable employment record at least for one to two years. Exclude self employment and earn regular salary (as it also adds to your credit record). Save at least 10% of your earning. Do not fall behind, while paying your future bills.
Some Other Things to Keep in Mind are
- If the credit score is 600 to 640, the borrower has to pay 7.5% interest. An average loan of $200,000 at 7.5% can demand monthly payment of $1,398.
- If the credit score is 560 to 580, the borrower has to pay 8.75%, which is +2.875% on prevailing rate. A loan of $ 200,000 at 8.75% interest rate may demand $1,573 payment.
- If the credit score is 540 to 559, it comes with +3.425% at prevailing rate. The borrower has to pay 9.3% interest, which is quite higher to the one with good credit (5.875%). On an average loan of $ 200,000, the bank may demand a payment of $1.653.
- While one with credit score less than 500, has to pay uncut 12% of interest, the applicants with less than 500 credits may face sever difficulty in receiving the housing loan.
These are a few things that are necessary to be taken under consideration. Applicants with bad credit can receive loans, but they are more likely to face obstacles during the loan clearance process. At the same time, you should be careful about the high interest rates and hidden charges that the lenders charge in exchange of the loan amount you borrow from them. If you are so much pressed by circumstances to handle your finances at that specific period, only then you should opt for these types of loans.