Bad Credit Home Purchase

Making a bad credit home purchase is not impossible but it can be difficult for a number of reasons. The first has to do with the recent mortgage market mess that has tightened what was an easy mortgage market into one that has made maneuvering through much more difficult. The second has to do with how credit is figured among lenders. Knowing how each lending entity looks at a person with a less than stellar borrowing history can help in knowing how to accept declines for lending and where to expect a yes. A good place to begin the discussion would be how lenders look at borrowing history and the debt to income ratio. More than ever, a person seeking a bad credit home purchase really needs to do his/her homework before signing on the bottom line.

Dreaming about one's own space instead of paying a landlord is the hope most Americans have, even if it is a bad credit home purchase. The first place to start is knowing one's own credit score. One of the three major borrowing score reporting companies can be accessed online for securing a credit score and then a first assessment needs to be made, so unless there is a close relative in the family that is a bank president, these financial institutions do not look at a person with a credit score under 640. This is a fairly hard and fast template to prescreen applicants for any kind of loan. However, even if a person does have a score above 640, the debt to income ratio is the other hurdle one must face. A bank does not want a person or a couple to have more than 40% of their monthly income devoted to loan repayments. And if a person is renting at the moment and is trying to buy a residence, then the ratio has to be around 20% so that the mortgage only takes it to 40%.

But a banking institution is only the first stop along the way to making a bad credit home purchase. A credit union has almost as stringent lending policies as a bank, but tend to look at a person in a holistic manner rather than in a template way. Each cu, since often independently owned may have its own set of criteria for lending money, so all of them within a comfortable driving distance ought to be checked out. The reason for banks and cu's being mentioned first is because generally speaking, these lending entities have the lowest interest rates for mortgages. But there is more to a mortgage than just the interest rate.

Now would be a good time to stop and talk about points on a mortgage. When a person looks in the paper and sees a number of mortgage companies offering loans, not only will the interest rates for different loans be listed, but also the points for each type of loan. A point represents one percent of the total loans, this is the money that the lender or broker makes on the sale of the mortgage being offered. When making a bad credit home purchase, great care needs to be made in all of the fees and points added to the cost of the mortgage. Origination fees, discount fees, broker fees and yield spread premium are all different ways of saying the same thing. A fair type of loan will list all of the points in an upfront manner. A scammer will charge many more points than the industry recognizes as being fair. Sometimes a borrower has the opportunity to pay more points to buy down an interest rate, and if the borrower knows he/she will be in the house more than five years, that option could make sense.

If a bank and a cu's doors are closed to your bad credit home purchase plans, the next place to try is a mortgage broker or lending company. These two types of lending entities are funded by investors who are willing to take higher risks on borrowers with less than stellar histories at handling credit. For a higher interest rate to the borrower, a high risk investor will not be nearly as interested in borrowing history scores or debt to income ratios. "Therefore being justified by faith we have peace with God through our Lord Jesus Christ." (Romans 5:1) But there may yet be one more way to make a bad credit home purchase.

An owner financed mortgage may be the ticket to making a bad credit home purchase possible. This loan is also called a seller carry back loan, which means the owner is so desperate to find an owner that he/she is willing to front the loan for a period of years, or maybe even the entire thirty year period. A person may pay a little higher interest rate with a carry back lending agreement, but it can also mean saving thousands of dollars in points fees. To make this work, one needs to have an attorney help draw up the papers and represent the borrower in order to protect him/her from future complications that could arise. For a person with a poor borrowing history, a seller carry back loan may be the brightest hope for a home purchase. Start driving around town or the country and look for the owner camped out front with a harried look on his/her face and a sandwich board sign that reads, "Rescue me from another day in this house!"

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