Bad Credit New Home Loans

by Gray Peters

Buying my own home for the first time was one of the most exciting experiences of my life; I had rented for years with my wife, and now we were ready to buy our first home. Our credit was relatively good, but I realize that’s not the case for many people out there who are hoping to live the dream of home ownership in spite of their damaged credit. They’re looking for bad credit new home loans.

Now, there are certain aspects of new home loans with bad credit that are universally part of home financing.

First of all, you have the typical facts relating to the home itself and the purchase price. Whether you’re a good credit or a bad credit borrower right now, the loan to value ratio (LTV) is going to be a major factor in whether you successfully finance the home. Banks are going to run screaming from almost anything but an 80% or lower LTV right now (yeah – they’d really prefer to see 70% or 75%).

Then you have the down payment. Even if you happen to be buying a home where the LTV is low due to the purchase price being low relative to the appraised value, most lenders are going to want you to have some ‘skin in the game’ in the form of a down payment. This will be especially true if you’re trying to get a new home loan with bad credit. Personally, I think it’s important for you to put a down payment on your home. During the few years there where the lending industry went completely insane, way too many people were able to buy expensive homes without ever sinking a single penny of their own money into the deal.

When you don’t have to put any money down I don’t think you’re fully prepared to make the mortgage payment when it arrives. It’s as though you got a ‘free house’ and I think that’s the wrong frame of mind to be in when you’re taking on such a major expense.

If your LTV and down payment are squared away, the final major consideration for the lender will be your income relative to your total monthly debt payments, factoring in your new mortgage. Lenders these days are going to be very stingy about letting that number go above 28%, and they’ll be very leery of any borrower with lots of unsecured debt, namely credit cards.

Getting a bad credit new home loan can work out for you, but you may have to spend a couple of years making yourself look better on paper so you can qualify, but do it with the best possible terms. The preparation process will actually be one of the most valuable experiences you go through in your financial life.

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