The ongoing credit crunch has witnessed a record number of foreclosures and bankruptcy filings. It has spelled a doom for the financial future of millions of people all over the world. Since buying a house remains the topmost priority even in this age, people are desperately looking for ways to keep the roof on their heads intact. If you have been amongst the unfortunate ones, who had to part with their house in a foreclosure, then you might have lost all your hope of owning a house of your own. Although, you had to say goodbye to your house, you need not have to say so to your dreams. Albeit your chances of finding a mortgage lender are bleak, you can always improve your chances by working on your creditworthiness.
How to Buy a House with Bad Credit
Before Applying for a Conforming Loan
If you filed for a bankruptcy and are now planning for a conforming loan, then there are a few points to be taken into consideration:
- If you file for a bankruptcy, then you cannot file for another one for 7 years. Besides, the impression remains in your credit history for 10 years.
- You can avail better rates for a conforming loan only if you wait for 4 years.
- As per FHA guidelines, you qualify for as little as 3.5% down payment after 2 years of a foreclosure.
- Hard money lenders, who promise loans within 6 months of foreclosure often demand 35 to 40% down payment. Moreover, the interest rates are sky high and the terms of the loan are highly unfavorable.
Improving Your Chances for a Conforming Loan
Applying for a major credit card after a foreclosure is a great option of improving your chances of getting a conforming loan. You might think, that you'll find it rather difficult to acquire a credit card, however, the truth is you actually improve your chances of getting one, after filing for bankruptcy. Here is how:
- Since, you filed for bankruptcy in order to start afresh, your lender knows that you have no debts.
- Moreover, the fact that you won't be able to file for another bankruptcy for at least 7 years, drastically increases your chances of getting a credit card.
- You can consider this a chance to work upon your credit scores. All you have to do is, produce an evidence of stable employment for a couple of years and a steady income during those years (ignore these conditions if you are self employed).
- If you pay your bills and taxes on time, clear all your monthly debts ,and execute all your civil duties then you can influence the lender's decision to work in your favor.
- Lastly, make it a point to save at least 10% of down payment every month.
Your FICO score would be the most influential factor in determining your down payment as well as interest rate. Since you have had a 'not so impressive credit history', you will be required to pay higher interest rates, compared to those with a clean credit history. Nonetheless, you'll be able to buy a house with bad credit, which you thought was impossible.