Everyone knows that the best way to easily get approved for loans is to have 1) a stable source of income, whether from a regular job or a business, and 2) good credit score. But does that mean that you can’t get a home loan if you have a bad credit score? No!
While it is true that it would be much harder for you to get approved for a loan, especially if it involves a huge sum of money if you have a bad credit score, it’s not the end of the world. It does not mean that you will forever be ‘punished’ for your past actions (or inactions, that is).
There’s still hope for people with bad credit loans.
Getting Your Score Up
While you are still stuck with a bad credit score for some time, don’t just stay there and think that you can do nothing to change your situation. The goal now is to get that credit score up.
Instead of getting more debts, try to pay off as much of your debt as you possibly can. That might be difficult in your current financial situation but perhaps you can get an extra job? It’s also a good idea to change your lifestyle and spend only what you can afford. This is especially useful if you’re planning on adding a big-ticket item on your debt list: a house.
Try to pay your bills on time and eliminate your credit card debt.
Paying off most, if not all, of your debt, actually frees up your budget so that you’ll have enough to cover for home financing.
Nonconventional Options for Bad Credit Loans
Thankfully, even if you still have a bad credit score, you can apply for nonconventional options for home financing.
VA loans
Available for service members, veterans, and eligible surviving spouses, VA loans are guaranteed by the US Department of Veterans Affairs. Because it does not have a minimum credit score requirement, it is easy for those eligible to apply for the loan.
FHA loans
Of course, not everyone is qualified for VA loans. The next best thing you can get is through FHA loans which are insured by the Federal Housing Administration (FHA). Designed for low-to-moderate income borrowers, loans can be approved even for those with scores as low as 580 (required 3.5% down payment) or 500 (required 10% down payment).
Hard Equity Loans
Instead of looking at your credit score, hard equity loans focus more on the value of the property to be financed. While you can have a better chance at a loan approval even if you have low credit score, you must take note that these loans often have higher interest rates.
Subprime loans
Another one with higher interest rate, subprime loans can be availed even by those with scores lower than 660.
Application Process for Bad Credit Loans
Have you been turned down repeatedly due to bad credit scores? Setting an appointment with the lender to get help for bad credit loans is the best thing to do right now.
Make sure to bring documents to prove your creditworthiness:
- Bank statements
- Job history, salary, tenure (bring the contract and latest payslips)
- List of assets (bring proof of ownership)
- Tax returns, W-2s and 1099 forms (for the last 2 years)
You might also be asked for or about the following, be honest in providing your answers:
- List of unsecured debts (credit cards, medical bills, etc.)
- List of other liabilities (alimony, child support, etc.)
- Involvement in lawsuits
- Whether you filed for bankruptcy
Good luck!