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Getting The Best Mortgage Loan With A Bad Credit
By: Paul Lerner
For most people, applying for a mortgage loan to buy a house is one of the
biggest and the toughest lifetime financial exercise. It gets even more
difficult for those who have had a bad credit history. Even though people with
bad credit are at a disadvantage, lenders do recognize their financial problems
and needs and offer them mortgage deals that might not be the best but which at
least provide them with an opportunity to own a home.
In order to get the best possible mortgage options, a borrower has to impress
upon a lender that in spite of a bad past, he is financially responsible. To
convince the lender of your credibility, the foremost thing to do before
applying for a mortgage loan is to start clearing the red flags that mark your
credit report. Begin by reducing your credit card debts as much as possible.
Similarly pay off other debts like car loans or auto debts, particularly if they
have more than 9 monthly installments left, since auto debts with less than 9
payments are generally excluded from debt calculations.
The next best thing to do is start saving big for a good size down payment on
your home. Since you fall in the bad risk category for a lender, the bigger the
down payment, the more it assures the lender of being able to recover his cash
in the event of a future default. Do remember to include closing costs when
saving for your down payment as they can add as much as 3% to the purchase
price. Overall, saving more than 20% of the total purchase price should improve
your credibility.
The borrower should target and reduce his monthly liabilities to less than 50%
of his total income in order to give confidence to the lender about his ability
to repay his mortgage loan without any defaults. It is never to late to get into
better financial habits, like reducing the use of credit cards and postponing
large purchases. At this point of time, it is wise to hold on to your present
job and not make any unnecessary jumps. A steady employment of over two years
adds to your image as a consistent and stable person.
Lenders will go through your bank statements to figure out your expenses and
incomes. Any unusual entry may raise question marks. If a friend or family
member gifts you money to help you purchase your house, make sure the lender
know it is a gift and not another loan. Reveal all your liquid and cash reserves
that you own since lenders judge your paying capacity from them and generally
prefer that they have at least two month’s reserve of the monthly mortgage
payments.
Last but not the least, even factors like prompt payment of house rents, phone
bills, insurance premiums and other financial bills add to your credit
worthiness. Finally, even after you have spruced up your credit image, make sure
to approach more than one lender and compare their lending terms and conditions
in order to get the best mortgage loan.
About the Author:
Paul Lerner enjoys writing about a variety of mortgage topics, including advice
on getting a refinance mortgage quote. See
http://www.freemortgagequoteguide.com/articles/refinance-mortgage-quote.php
for more information.
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