If you’ve got bad credit but you want to get a home loan, you may be worried about your options. Don’t panic – having bad credit doesn’t mean you can’t get a home loan. Just follow these top tips and see how things go.

Time your home loan application

Most lenders will be wary about lending money to you for a home loan if you have just been declared bankrupt or recently discharged from bankruptcy. You need to wait until your financial situation is as stable as possible before you apply for a home loan. Try to time your home loan application for when you have a stable address and can show evidence of a regular income.

Get a larger deposit

Having a larger deposit or down payment for your home loan means that you’ll need to borrow less money from the lender. This reassures the lender that you are less of a risk to them, and it can also reduce the amount of money you pay overall in interest and additional fees.

Get a guarantor

If you have a very close friend or relative who is able to act as a guarantor, you may be able to get a home loan with bad credit. Make sure that your guarantor is 100% comfortable with the position though and ensure that they have the funds to pay back the home loan if you default on your repayments.

Work with a bad credit specialist

Finding the right home loan provider is a huge step to getting a home loan with bad credit. Find a lender who works with people with bad credit to avoid applying to lenders who may automatically reject you on account of you having bad credit.

Show proof of repaid loans or financial stability

If you have bad credit, it may not necessarily mean that you are financially unstable. If you have proof of repaid loans or bills that have been paid on time, show these to your lender to reassure them that you are a responsible borrower and will be able to pay back your home loan.

Borrow less

If your credit is bad and you’re looking for a loan for a large home, you may need to considering borrowing less and downsizing on the property that you’re after. This could also mean that you’re under less financial strain to make large repayments that could cause you stress.

Budget properly

Always be realistic about how you will be able to afford your repayments. It’s easy to get carried away with a home loan when you’re tempted by finding your dream home but budget properly and make sure that you’ll be able to repay your loan. Failing to repay what you owe could result in you damaging your credit further.

Obama’s home loan modification plan is officially known as the Making Home Affordable (MHA) plan. This plan is expected to reach up to 9 million families, so that they can refinance or modify their loans in the meantime they can look for jobs and hold their houses during this economic recession. Even if you think you won’t qualify, Learning about the requirements for modifying your home loan might surprise you.

The first criteria for modification is that your loan has to be a Fannie Mae or Freddie Mac insured loan. One also must be the primary resident of the house in order to refinance or modify your home loan under the plan. At the present time loans that are qualified under the MHA plans has to be either Fannie Mae or Freddie Mac insured loan in order to get special refinancing and modifying loans under the MHA plan.

The MHA plan gives homeowners tow separate options. The first avenue is refinancing; the second is modifying their loan. Borrowers who have not yet fallen behind on mortgage payments and owe below 105% of the principal of their loan can take advantages of a special refinance. It’s important to know that borrowers who are still current on payments can refinance under the MHA act. Borrowers whose mortgage payment are on time and owe below 105% of the principal of their loan can take advantages of a special refinance.

People who have been paying their current as well as people who have fallen short on their mortgage payments can get loan modification. As long as you own and occupy the house and have monthly payments that exceed 31% of your gross monthly income.
If you’re having difficulty making ends meet and paying your monthly mortgage premiums, then getting a loan modification with the government-sponsored MHA plan could be for you.

The loan modification plan target at-risk borrowers and adjusts the terms of their mortgages so they will pay below 31% of their gross monthly income. This is called their debt-to-income (DTI) ratio. The first step is for lenders to reduce the interest rate to a floor of 2% to try to meet a 38% DTI. If the interest rates hit the floor and still do not meet the 38% DTI, then further modifications can be made. The lender can extend the loan for up to 40 years, and then they can begin to forbear principal on the loan. After meeting the 38% DTI, lenders and the Treasury will work together in a dollar-per-dollar matching program to bring the rate down to below 31% DTI for borrowers.

After coming to an acceptable modification, borrowers will have three months to prove that the new loan rates are something they can handle. If they keep current for a trial period of three months, the new mortgage terms stay fixed for the next five years. This is the procedure that the MHA plan uses to prevent foreclosures and let millions of U.S. families remain in their houses.

Refinancing involves taking out a new home loan to pay off an existing one. Refinancing is done primarily for two reasons: to save money through a lower interest rate, or to exchange a property’s equity for cash.

Say you have an adjustable rate mortgage and mortgage rates are beginning to rise. Refinancing (ideally to a fixed rate) would be the most sensible course of action as this would allow the borrower to avoid the high monthly payments associated with higher interest rates, as well as allow the borrower to move to a lower-risk loan. This can be a good idea regardless of what kind of mortgage you currently have

However, there’s more to think about than just interest rates when talking about refinancing. You could choose to refinance to decrease the term of your mortgage so that you can pay it off sooner. This is especially a good idea if your financial situation changes to allow you to afford higher monthly payments and can ultimately amount to thousands of dollars in interest savings.

Other homeowners choose to refinance not because they are overly concerned with saving money, but are instead looking for a “cash-out” type of mortgage where they can exchange some of the equity they hold in their home for cash. This is usually done by borrowers looking to a solution to pay off large debts, fund home improvement projects, or pay for other major expenses.

While refinancing very often seems like a great idea, it is not right for everyone. If you are considering refinancing, be sure that you explore your options thoroughly and consult with a financial adviser before making your decision.