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How to Get a Home Loan With a Bad Credit

Arjun Kulkarni Jan 5, 2019
Today lenders are reluctant to open their purse-strings, and when it comes to people with bad credit wanting to buy a home.
Bad credit was already bad enough for getting a loan approval, but this situation has been compounded by the sub-prime crisis in the United States. Most of the big lenders have gone bust, so there is a scarcity of lenders anyway.
Adding to that, those institutions that have braved the crisis and managed to survive, are looking to learn from the mistakes of those lenders that perished, and now are severely rationing lending to people with good credit.

Ways to Get a Home Loan With Bad Credit

Improve Your Credit Score

This might sound like the most obvious way, but rest assured, it is the best. Improving your credit score will help you access finance very easily. Plus you have the added advantage of appearing to have 'reformed', so banks might just consider that.
If you have poor credit rating right now, you can improve it by paying off all your old credit card debts, and cut down the use of credit cards altogether. There are many simple things you could do to look like a responsible citizen. Like getting your name on the electoral roles, paying all your taxes, etc.
It might take around 6 months to 1 year to clean up your credit rating depending on what your score is today. Look at it as an investment which will bear you returns in the long run. Cut down shopping binges and other discretionary expenses. A year of cut-backs will give you benefits later.

Short-Term Finance

A faster way of obtaining grants for buyers with bad credit is to convince a seller (or someone you know) to pay your mortgage for 6 - 12 months, while you clear up your credit history, and then pay him back once you get your loan sanctioned.
But all the while, you have to make an honest effort to clear up your credit history, otherwise you lose the faith of the person who is ready to finance you in your time of need.
You might know by now that those with a bad credit rating get loans at a higher rate of interest. How much higher? Up to 2% higher. And for long-term loans, that 2% is going to accrue a lot. So if by improving your credit score, you can get a loan easily and that too at a cheaper rate of interest, why not?
Bad credit is not exactly an indelible mark on a person's history. It is a tough stain, but certainly can be removed with some effort. Firstly you have to change your mindset. Learn your lessons. Getting credit is great, but is it always necessary?
Why not prioritize your expenses and cut back accordingly? It is going to take a lot of work to improve your credit history, so perhaps now you will value it more and use it judiciously.