Having bad credit will greatly affect your credit applications, especially if you have filed bankruptcy. If you have previously owned a home, and maintained a good payment history, lenders may give you a loan following a bankruptcy. However, if you are a first time homebuyer, expect lenders to be leery.
Loan Options for First Time Homebuyers
First time home buyers have several loan options. There are loan programs that offer down payment assistance, closing costs assistance, and low interest rates. These amazing benefits are designed to help you obtain a loan. Of course, to qualify for most first time home buying loans, you must have good or fair credit. Mortgage companies have specific guidelines. If you have a recent or past bankruptcy, your loan options will differ from an individual with good credit.
Increase Your Chances of Getting a Home Loan after Bankruptcy
Attempt to open new credit accounts immediately following a bankruptcy. When applying for a mortgage, lenders need to see some signs of credit improvement. Thus, you should wait at least one year before applying for mortgage loans. While a wait time of two years is recommended, if your credit improves significantly within a year, lenders may give you a home loan with acceptable terms.
During the period of rebuilding and increasing your credit score, keep credit accounts current. Defaulting on loans or receiving charge-offs following a bankruptcy is bad. In this situation, getting a home loan is practically impossible. While sub prime and high risk lenders are dedicated to offering bad credit mortgages, they will not give you a loan if you continue to be irresponsible in regards to credit.
Purchase Your First Home with a Down Payment
Applying for a mortgage loan with a down payment is recommended for first time homebuyers with a bankruptcy on their credit report. Saving for a down payment is difficult. However, it will raise your chances of receiving a good deal. Establish a budget. Lenders do not require large down payments. The average down payment for a home is about 3%.
Traditional Mortgage Lenders vs. Sub Prime Lenders
Moreover, apply for loans through lenders that work with bad credit and bankrupt applications. Do not waste your time by submitting applications through banks or mortgage companies. While these lenders may offer non-conventional loans, the interest rate is extremely high.
Instead, apply for mortgage loans through sub prime lenders. Sub prime lenders offer loans to individuals with low credit scores, bankruptcies, and no credit. The rates and fees for these loans are affordable. Do your research and obtain quotes from three or four lenders. Compare their offers, and choose the mortgage lender with the most attractive terms.
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