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Top 8 Ways To Get A Mortgage With Bad Credit


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7. Find Alternative Lenders

Since the subprime meltdown, many of the lenders that cater to low-credit borrowers have gone out of business, but there are still some out there. You have to be very, very careful here, because these kinds of lenders are in a prime position to take advantage of desperate borrowers. Be on alert for scams and check out your lender’s reputation with the Better Business Bureau .

You could also get in a touch with a reputable mortgage broker who is licensed in your state. Unlike your local bank or credit union, brokers have access to countless lending resources and are often up to date on many of the programs available to low-credit lenders.

Where Do You Start Looking?

Consider the following resources from several well-known banks:

If there’s a way to get a mortgage deal done with your credit, a mortgage broker is likely to find it.

6. Make It Temporary

As we mentioned up front, getting a mortgage when you have a low credit score is very expensive. If you’re going to do it, it pays to make this solution temporary and aim to move on to a more conventional loan as soon as possible. This doesn’t mean you have to get a short-term loan, but plan on paying the mortgage and all your other bills and debts on time so that you’ll have the credit score to refinance into something better within a couple of years.

5. Consider Adjustable Rate

If you’re borrowing with a low credit score, you may have to consider an adjustable rate mortgage simply because the interest rate on a fixed loan will be so high much higher than any rates you’ll see advertised by local banks or online. This should help keep your mortgage payments low enough to be more manageable.

Understanding the ins and outs of an adjustable-rate mortgage can be a tricky business, especially for first-time buyers; if you re looking to educate yourself on this, be sure to consider the Consumer Handbook on ARMs. as it offers a detailed, and unbiased, look at this topic.

The risk to an ARM. of course, is that interest rates will rise, causing an increase in your mortgage payment. However, loan experts tend to agree that this is less of a factor if you’re planning on staying in the loan for a short time.

4. Don’t Agree to a Prepayment Penalty

Lenders may try to convince borrowers to go with a loan with a prepayment penalty. This is essentially a clause in your mortgage contract that allows the lender to collect extra money if you pay off the mortgage early or make extra payments above a certain limit to help reduce your debt. Not only can a prepayment penalty be expensive, but anything that discourages borrowers from reducing their debt is bad news.

If you can pay more on your mortgage, do it – it can save you thousands. And don’t let the lender talk you into a deal that’ll force you to do otherwise.

Still feeling uneasy? Check out this list of questions you should ask your mortgage lender before making a commitment.

3. Boost Your Credit

If you have poor credit. one obvious way to improve your chances of getting a mortgage is to improve that score. This is a solution that takes longer, but even a small increase in your score can make a real difference. Order a copy of your credit score from all three bureaus– TransUnion. Experian and Equifax start looking for any inaccuracies. Disputing inaccurate information can give your score a significant boost almost immediately.

You can do so by filling out a dispute form and sending it to each company. If you have more time, you can work on improving your credit score by ensuring that you pay down your overall debt and make all credit card and loan payments on time every month. You can check out other tactics for improving your credit score at MyFICO.com .

2. Make a Higher Down Payment

One thing that can make you a lower risk to a borrower is a big, fat down payment. If you have access to some cash, this can go a long way toward helping you secure a mortgage loan. After all, lenders need some assurance that they’ll get their money back. The more equity there is in the home you buy, the easier it is for them to do that. Plus, a higher down payment will mean that you won’t have to pay private mortgage insurance, which is required of homeowners who put down less than 20 percent of the cost of the home.

So how much should you put down? As you may have suspected, there s no right or wrong answer; consider Bankrate.com s Down Payment Calculator to get a sense of what amount you should be aiming for. You can accept down payment money from family or friends, but it must be a gift, not a loan, and you’ll need a “down payment gift letter” to prove it.

Be sure to also check out Dividend.com s Guide for First-Time Homebuyers

1. Find a Co-Signer

If you can find someone to co-sign for your loan, you could avoid a bad credit mortgage altogether. Keep in mind, however, that this agreement means that you will be putting a family member or friend on the hook for your debt. If you default, both you and your co-signer will suffer the consequences.

The Bottom Line

If you already struggle with staying on top of your debts, do you really want to add a mortgage to the mix?


Tools and mortgage calculators for your home loan


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Home loan calculators

Simple mortgage calculators to help you plan

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1 Qantas Points, offered by Macquarie, accrue and will be credited to your Qantas Frequent Flyer account in accordance with the ‘Macquarie Bank Flyer Home Loan Terms and Conditions ‘. You must be a member of the Qantas Frequent Flyer program to earn and redeem Qantas Points and to qualify for a Macquarie Bank Flyer Home Loan. A joining fee usually applies. However, Macquarie has arranged for this to be waived if you take out a Macquarie Bank Flyer Home Loan. Membership and the earning and redemption of Qantas Points are subject to the Qantas Frequent Flyer terms and conditions available at qantas.com/terms. You will not receive any Qantas Points while you have defaulted on a loan repayment on your loan account and this amount remains outstanding for 60 days or more. Macquarie is not responsible for the administration of the Qantas Frequent Flyer program. Qantas Airways Limited remains at all times solely responsible for the administration of the Qantas Frequent Flyer program.

Qantas has made no enquiries as to the accuracy of the Macquarie products or services described, and is not responsible for errors or omissions. Macquarie Bank Flyer Home Loans are not Qantas products and are not offered or issued by Qantas but by Macquarie as Servicer.

2 Not available on loans to Self Managed Superannuation Funds or during the construction period of a loan. Terms, conditions and limitations apply. For more information, refer to the Macquarie Bank Flyer Home Loan Terms and Conditions.

Information and interest rates are current as at 6 October 2015 and are subject to change.

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  • At the end of the fixed rate period, the interest rate will revert to the current standard discounted rates. Our Standard Variable rate is currently 5.50% pa (variable and comparison* ) for owner occupied loans and our Investment Variable Rate is currently 5.77% pa (variable and comparison* ) for investment loans. You will be notified of the discount that applies to your rate prior to the end of your fixed rate period.
  • Fixed rate loans may be subject to significant break costs. Please refer to your loan contract and terms for details of break costs applicable
  • There are no account management fees or application fees but other fees and charges may apply. See the full schedule of fees and charges .