Home Loans: Bad Credit Doesn't Have To Mean No

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Home Loans: Bad Credit Doesn't Have To Mean No
In the new market of home loans, bad credit is no longer an automatic 'no' to many lenders. Depending on your circumstances, you may qualify for a sub prime or bad credit home loan with many lenders. Banks, finance companies and even the federal government now offer loans to people with rocky credit histories at higher interest rates than conventional mortgages and home equity loans. The competitive market for your loan business is good news for those seeking home loans - bad credit, slow credit or no credit at all, there are home loan programs that will accommodate nearly everyone.

While that's good news for many people, it could be a dangerous situation for some. The sub prime lending market has literally exploded in the last five to ten years, and lenders are eager to make money on the loans that they can sell. As the real estate market has heated up, many lenders have relaxed their lending standards and lowered the minimum credit score required to get home loans. Bad credit is now acceptable. There are many loans being made that wouldn't have made it past a junior loan officer's desk five years ago.

Even the federal government is making it easier for those who wouldn't have got a loan five years ago. The Fannie Mae and Freddie Mac loan programs each feature new variable rate mortgages, and higher percentages of income to real estate expense. Where once the accepted ratio of home expense to income was around 25% (remember the old saying? Your rent or mortgage should be no more than one-fourth of your monthly income.) both programs will now consider making home loans to those whose mortgage payments will be as much as 38% of their monthly income.

Other lenders who make home loans have relaxed their definition of bad credit. A few years ago, one or two missed bill payments was enough for a denial of credit, and bankruptcy could make it impossible for you to be considered for seven or more years for any home loans. Bad credit these days is far more open to interpretation. Many lenders will make home loans to you even if your bankruptcy was discharged as little as two years ago.

One danger for the borrower in the new sub prime home loans market is that of getting in over your head. The relaxed standards may mean that lenders will approve a loan that is marginal and risky for them - but could be devastating for you. Keep in mind that just because a lender says you qualify for a loan with a $3,000 a month payment doesn't mean that it's a good idea for you. Be realistic when shopping for home loans. Before you decide to accept a loan, sit down and total up your expenses so that you know how much you can COMFORTABLY afford to pay per month. It will help you evaluate the loans that you're offered, and avoid dangerous home loans with impossible repayment terms.

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Home Loans: Bad Credit Doesn't Have To Mean No
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