Bad Credit Mortgage: 5 Steps to Ease the Process
Bad Credit Mortgage In the tightened credit market, bad credit lenders are choosier, and they require more financial documentation than a few years ago.
Make the process of buying a home go more smoothly and quickly by being prepared, especially if you need to shop for home loans for bad credit. Follow these 5 steps:
1. Fix credit report mistakes, and get your credit score.
Request free copies of your credit reports from each of the three major credit reporting bureaus through AnnualCreditReport.com. You’re entitled to free copies once a year. Check the reports carefully, and follow the credit bureaus’ directions for fixing any factual errors. Sometimes fixing just one error improves your credit score enough to qualify for better mortgage rates. Also, pay the small fee required to get your FICO credit score, used by a most lenders, so you know where you stand when requesting mortgage quotes.
2. Keep your down payment in liquid savings.
Maintain your down payment in a savings or money market account that gives you quick and easy access to the cash.
3. Get poor credit mortgage quotes.
Shop around to see what kind of rate you can get, considering your credit score. Enter your information on this page to get up to four free quotes from competing lenders.
4. Get your paperwork in order.
Here are the items lenders will want to see, according to FICO, creator of the FICO credit score:
- W2 earning statements or 1099 DIV income statements for the last two years
- Federal income tax returns for the last two years
- Bank statements for the last few months — these should show you have money for a down payment
- Recent paycheck stubs
- Proof of other income, such as tips
- Proof of investment income
5. Get preapproved for a bad credit mortgage.
To get preapproved, the lender checks your credit and documents your income and assets, then approves you for a loan up to a certain amount. You get a letter saying how much you can borrow, which you can show to real estate agents. Don’t confuse that with prequalifying, in which a lender does a rough calculation of how much you can borrow, given your income and down payment, but does not underwrite a mortgage application.
Taking these steps improves your chances of reaching your goal of homeownership. Remember the words of former NFL Hall of Fame Coach Joe Gibbs: “A winning effort begins with preparation.”
