Applying For Bad Credit Home Loans After Bankrupcy or Foreclosure

Bad credit home loans are hard to avail but not impossible. If you have bad credit, there are still ways in which you can avail a home loan. Even if you have filed for foreclosure or bankruptcy, it is not the end of your dreams of being a home owner. After the requisite waiting period, you can still buy it.

There are waiting periods after bankruptcy or foreclosure before you can avail another loan that have been specified under the law and by the lenders.

When you file for bankruptcy, it remains as a negative point in your credit report for ten years. The brighter side of this is that it leaves you debt free and you cannot file another bankruptcy for the next seven years.
According the regulations laid down by FHA, you have to wait for 2 years after a foreclosure before being able to take a loan but the benefit is that you can qualify for a loan with a down payment of just 3.5%.
But if you wait for four years, you can get a conforming loan with good rates.
However, if you are in a hurry, you do not have to wait for the specified time period. There are lenders, known as hard-money lenders, who will approve your loan in just six months after filing bankruptcy or foreclosure but you will have to make a down payment of at least 30-35% and also have to pay very high rates of interest. The terms of the loan will not be favorable and there will be many clauses containing prepayment penalties.
Sub-prime lenders are also now not making complexly financed loans.

Check your credit report

Bad credit is not just about bankruptcy and foreclosure. Late payments and those tiny negative items also affect your report. The basic thing to do before applying for a home loan is to check your credit report.

If the lenders check it and have rejected it, ensure that their reasons of rejection on account of bad credit are valid. If, on reviewing, you find that the bad credit is due to errors that are not your fault, then contact the credit bureau and get them rectified. If your credit is still bad and you wish to take a home loan then before taking a loan from hard moneylender and sub prime lenders, take a look at other options that are better.

Interest rates and scores

When you check your credit report, check your credit scores too as it affects the rate of interest that you are charged. A contrary factor of this is that two people with same score may be charged different rates of interest depending upon their financial health. A person with credit score of 600 may be charged interest of 5.85% whereas another person with the same score would be charged 7.5%. The reason for this lies in this credit report. If the report is clean with no bankruptcies or foreclosures, the rate of interest charged would be lower as compared to the second person that has a credit report with such negative items.

Scores affect the rates of interest and this is the reason why FICO has score slabs. A person with a score that is lower than 500 has to pay 6.25% more than the current rates. When your score is between 540 and 500, the rate of interest is 3.875% more. It is #.425% higher than the prevalent rate when the score lies between 540 to 559 and +8.75% when it is between 560 to 580. Those with score between 600 and 640 are charged the lowest rate of interest.

Ways to Get Home Loans with Bad Credit

If your credit is bad i.e. it has a number of negative items and you have a low score but it can be fixed, you can look for viable options for getting a home loan.

Credit Union – Credit Unions are usually sympathetic to people with bad credit applying for a home loan. For them, it is not just about the credit report but also about the person. If circumstances surrounding the bad credit report seem to be genuine then they help the person and give the loan.

Borrow from family and friends properly so that both you and the person who has helped you are protected

Family and friends – Approach your family and friends for a loan if you have bad credit and have been rejected for loan. They know you and the problems that caused the bad credit and so will be more willing to help you if they can. If they cannot help you financially, they may agree to be a co-signer and get the loan approved.

You can borrow from strangers by registering at a “peer to peer lending” site.

Peer to Peer lending – There are many sites that help people with bad credit get a loan. The individuals on such sites loan money but are very careful, as they want their money to be safe.

Borrowing against home equity is risky as you can lose your home if you default.

Using Collateral – This is by far one of the best ways in which you can borrow money. If you have bad credit, but also have something valuable that you can pledge, lenders will not hesitate to loan the amount. They know that you are serious about the loan and will repay it.

Bankruptcy

When you want to avail home loan after the waiting period after filing bankruptcy or foreclosure is over, then apply for a conforming loan. A conforming loan is one that is easy to avail if you have been fulfilling your financial obligations responsibly. Follow the steps given below to qualify for a conforming loan.

Stick to one job during the waiting period so that the lender knows that you are steadily employed and that you are getting regular salary.
Get a credit card. Since you are applying afresh after the bankruptcy, you application for the card is not likely to be turned down. On the contrary, as the credit card company knows that you are debt free and that you cannot file for bankruptcy again for 7 years, you will be given a card easily.
Pay your bills et al on time during this period.
If you can make a down payment of at least 10%, your application for home loan will be given positive consideration.

Seller financing

Instead of approaching banks and paying high rates of interest, you can also look at other options like seller financing. This type of financing is good for those with bad credit as the rates of interest are low and the terms of payment are flexible. Unlike banks and other lenders, you can repay you loan early without any trouble.

Refinancing

If you take home loan from a traditional bank or a lender at high rates of interest and with unfavorable terms, wait till your credit report improves and then get the loan refinanced. If you are looking as refinancing as an option, then keep checking the rates of interest each year so that you do not end up paying more.

Homebuyer programs

The purpose of the class is to ensure that families can not only buy home but also keep it.

State governments and local bodies have homebuyer programs for consumers with bad credit looking for home loans. The basic requirement of all these programs is that the consumer should attend a class on homebuyer education that is free. The requirements are different for different states and they are beneficial as they teach you how you can budget and buy a home.

People are encouraged to buy homes to stabilize neighborhoods.

Most of these programs offer home loans with low rates of interest and, depending upon the program that you choose, have different requirements. They have been launched and are in place so that people are encouraged to buy homes and lead a stable life.

Complete the loan form to see if you qualify for any of the homebuyer programs.

There are different categories of homebuyer programs. Some of them are available for government employees and some may be for teachers or military personnel. If you shop around well, you will come to know of certain programs where the grant does not have to be repaid or if it does, it has an easy repayment plan. Some of the programs also help people with the down payment.

If you have bad credit and are applying for a home loan, beware of predators, who take advantage of your need and charge you exorbitant fees for the loan. Investigate al your options before you approach such people. The government, homebuyers programs and the credit unions et al have many viable options for people with bad credit and help them out.