When you suffer from bad credit, you feel worried about the chances of getting a home loan. Please stop worrying over this! Even in case you have no good points but only bad points in your favor, like poor or bad credit, filing of bankruptcy, foreclosure, etc. there are still enough possibilities of getting a loan. May be, you will not be able to get huge amounts as loan and the rate of interest may be somewhat higher than in normal cases. But all said, you can get a realisticloans. This fact, in itself, should encourage you to put your worries behind!
After foreclosure of a loan or after filing bankruptcy, one has to wait for a certain period before he becomes eligible for a loan. What is that waiting period? Generally, it is between 7 and 10 years; during this period, the fact of foreclosure and bankruptcy will find a mention in your credit report. But there is a loan option called ‘conforming loan.’ For availing this loan, a four year waiting period is enough. And this loan is available with better rates. As far as foreclosure is concerned, there are FHA guidelines stipulating a two year waiting period. This allows you to avail a loan, even after just one year of foreclosure, with a 3.5% down payment.
If you want to qualify for a conforming loan, there are certain things you have to do in right earnest. They are as follows:
You must possess one the major credit cards; this is easy, because a bankruptcy helps you get on with a ‘fresh start’; there is no possibility of your filing bankruptcy again within the next seven years; there is an assurance that you are ‘debt free’ now.
You should give proof of your employment, for a period of one or two years, with income details. You should furnish proof of residence, with full address.
You should be ready with cash for a down payment of say 10% of the amount of loan you want to avail.
Last, but not least, you should strictly adhere to payment terms; you have to settle your dues on the due dates.
There are quite a few private lenders who are willing to give loans to you after six months after foreclosure and/or bankruptcy. Of course, the down payment will be a little higher. Interest rate, as well as terms too will not be favorable. There is a relationship between the interest rate charged and the FICO scores. With a FICO score of 600 – 640, a borrower has to pay an extra 1.625% over the current rate. When the FICO scores are coming down, you will be making higher monthly payments. When the FICO score comes below 500, the interest rate will be 12% which means the monthly payment will be much higher.
Is there any alternative available to bank financing?
In case you find the rates offered by the conforming lender are not to your satisfaction, you can go in for a loan called ‘seller financing loan.’ This is an ideal alternative option for availing a loan to buy a home. This loan has a few advantages for the borrower. First of all, there is no ‘qualification clause.’ Another thing is, lower rates of interest. Besides, terms of payment are also quite reasonable and affordable, and they are ‘flexible’ too! It will be advisable for you to get in touch with your lender, at regular intervals, as to whether and when you will be eligible to get a ‘refinance loan’, at lower rates of interest.