Posts tagged: home loans for people with poor credit

Home Loans with Poor Credit


Recently I was talking with a friend who’s living with his parents right now, along with his wife and three kids. He’s 34, and he ended up living with his parents after going through a rough patch with his employment and missing some payments on his other debts. His wife’s credit went in the tank too, because her name was on the loans with the missed payments. It’s a bit of a mess, but a couple of years have passed since he went through all that, and he and his wife are looking to buy a new home now. Obviously they’re going to have to look into home loans with poor credit.

What people don’t realize is that getting a poor credit home loan isn’t a completely impersonal process. Yes, lenders have to consider your credit score as part of the qualification process, but that doesn’t mean they have to completely neglect the human element. The first and biggest piece of advice I’d give a  credit challenged home loan applicant is to contact every bank and credit union in your city or county.  Local lenders are much more likely to actually sit with you and have a sincere conversation about the factors in your application that don’t show up in a credit score.

You really want to explain to them, being completely truthful, what circumstances led to your bad credit status. Think of this like a job interview, and imagine you’re telling your new prospective boss why you got fired from your last job. It’s actually a very similar situation. One thing you don’t want to do is lie or make excuses. You’re trying to make it clear that the past is the past, and although you’re responsible for what happened, you’re never going to let it happen again. Make sure you can paint a very clear picture about what’s different in your circumstances now compared to when you wrecked your credit. They’ll appreciate a sincere explanation much more than a laundry list of hard luck excuses and stories about how “it’s not your fault.”

The next best piece of advice I can give isn’t something you can complete in a day, a week, a month, or probably even a year. You need to a) minimize your personal debt, b) increase your income, and c) save up a nice down payment. Remember, you’re trying dealing with home loans for people with poor credit. Nothing strengthens the message that you’ve changed more than being able to show them a credit report that, although it shows  a low score, doesn’t show any consumer debts on it.

There’s a psychological benefit as well as a tangible benefit to having almost no other debt when you’re trying to get your home loan. The tangible benefit is that your debt to income ratios will look great (especially if you followed the advice about finding ways to increase your income). The psychological benefit is that the underwriter will be able to look at your report and say “this person has obviously made some big changes in his/her personal finances.”

If you make the effort to go through these steps I feel confident you’ll be able to qualify for the home loan you want and need sometime in the next year or two.