The rising cost of living combined with the global financial crisis has led to a lot of problems for everybody in general. People with sterling credit once upon a time are now finding it difficult to maintain their living expenses, let alone a high credit score. For others who live from paycheck to paycheck there is a great risk of developing bad credit in case of emergency . In such a situation it is understandable why lenders are wary of giving loans to people with bad credit. It is not that they cannot afford to lend you the fund you need, it is that they are scared of the risk of default occurring. For people looking to buy homes or take out home equity loans there are certain problems faced if they have bad credit. However one needn’t despair as bad credit home loans are available and one just needs to know where to look.
Types of bad credit home loans
There are two types of bad credit home loans depending on whether you are a first time buyer or you already have a home. Bad credit home loans for first time buyers are called bad credit mortgage loans or bad credit new home loans. These loans have high interest rates for people with bad credit, almost up to 10%.
The second type of home loan sector is the one in which people already have a home but are in need of money either for some personal expenses or medical expenses or for remodeling or for making some investments or to clear off old bills. These loans are known as home equity loans with bad credit and are designed for home owners that already have mortgage loans .
The government has initiated programs to help first time home buyers known as the Federal Housing Authority (FHA) loans which are given by lenders who are availing of this facility. Here, the government is backing the loan and hence lenders are less scared to give the loan. The payment from your end in these cases can be as low as 6 to 7% of the sale price. In cases where you are not availing of lenders who write FHA loans then the money that you may have to put from your side will be at least 10% of the sale price.
Certain tips before you go in for a bad credit home loan
Check your report
We all make mistakes, and yet someone else’s mistakes should not cost you. Hence before planning to go in for a new home make sure that you check your credit report from each of the three credit bureaus – Equifax, Experian, and Transunion. Any mistakes, errors or omissions should be brought to notice so they can be corrected immediately. In such a case you will be ensuring that your credit score is not being hampered by clerical mistakes.
Before going in for a bad credit home loan make sure you have collected enough money to make your first payment. The minimum should be equivalent to 10% of the sale price but if you are in a position to foot a greater amount then do so as then your monthly installment would be less and this goes a long way in providing you ease.
Whenever you choose your new home make sure that the installments for the bad credit home loans that you will be ultimately paying are in the range of 28 to 33% of your current income. If you can ensure that the installments are even less than this, then even better.
At bad credit personal loans, we have collected a list of a wide number of lenders who specialize in giving bad credit home loans. Feel free to avail of our free resource.