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Getting the best mortgage loan with a bad credit

For most people, applying for a mortgage loan to buy a house is one of the biggest and the toughest lifetime 
financial exercise. It gets even more difficult for those who have had a bad credit history. Even though people 
with bad credit are at a disadvantage, lenders do recognize their financial problems and needs and offer them 
mortgage deals that might not be the best but which at least provide them with an opportunity to own a home. 

In order to get the best possible mortgage options, a borrower has to impress upon a lender that in spite of 
a bad past, he is financially responsible. To convince the lender of your credibility, the foremost thing to do 
before applying for a mortgage loan is to start clearing the red flags that mark your credit report. Begin by 
reducing your credit card debts as much as possible. Similarly pay off other debts like car loans or auto 
debts, particularly if they have more than 9 monthly installments left, since auto debts with less than 9 
payments are generally excluded from debt calculations. 

The next best thing to do is start saving big for a good size down payment on your home. Since you fall 
in the bad risk category for a lender, the bigger the down payment, the more it assures the lender of 
being able to recover his cash in the event of a future default. Do remember to include closing costs 
when saving for your down payment as they can add as much as 3% to the purchase price. Overall, 
saving more than 20% of the total purchase price should improve your credibility. 

The borrower should target and reduce his monthly liabilities to less than 50% of his total income in 
order to give confidence to the lender about his ability to repay his mortgage loan without any defaults. 
It is never to late to get into better financial habits, like reducing the use of credit cards and postponing 
large purchases. At this point of time, it is wise to hold on to your present job and not make any 
unnecessary jumps. A steady employment of over two years adds to your image as a consistent 
and stable person.

Lenders will go through your bank statements to figure out your expenses and incomes. Any unusual 
entry may raise question marks. If a friend or family member gifts you money to help you purchase your 
house, make sure the lender know it is a gift and not another loan. Reveal all your liquid and cash 
reserves that you own since lenders judge your paying capacity from them and generally prefer 
that they have at least two month’s reserve of the monthly mortgage payments. 

Last but not the least, even factors like prompt payment of house rents, phone bills, insurance 
premiums and other financial bills add to your credit worthiness. Finally, even after you have 
spruced up your credit image, make sure to approach more than one lender and compare 
their lending terms and conditions in order to get the best mortgage loan. 




About the author:
Paul Lerner enjoys writing about a variety of mortgage topics, including advice on getting a refinance 
mortgage quote. See http://www.freemortgagequoteguide.com/articles/refinance-mortgage-quote.php 
for more information.






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