Tips on How to Buy a House With Bad Credit


Tips on How to Buy a House With Bad Credit thumbnail

As of 2009, you need a score of at least 660 to qualify for most mortgages, according to mortgage expert Michael Bluejay. Before the housing crash in 2007, you could obtain a loan with a bad score of around 580. Those with poor credit can still get a home loan, but you will have to show that you are turning around your financial situation.

Credit Score

    The best way to qualify for a mortgage is to raise your credit score. Start by paying off as many outstanding loans as possible and dedicate yourself to paying your bills on time.

Tip

    Government-backed loans are one of the best ways to qualify for a mortgage. Federal Housing Administration loans have no minimum score to apply, but your score determines how much of a down payment you need. Military members can get Veterans Administration loans.

Potential

    If you do get a home loan with bad credit, make sure you have some equity in the property, according to Brandon Cornett of Home Buying Institute. Owning some equity lets you refinance at a later date and reduces your monthly mortgage payments—a few hundred dollars adds up to thousands over the life of a typical 30-year mortgage.

How to Write Off Loan Debt


How to Write Off Loan Debt thumbnail

Any amount of money that you loan to an individual and yet do not receive back qualifies for a general write-off because it was once included in your income. When you write off a bad loan, you claim a tax deduction on the amount you did not receive. This allows you to recoup some or all of your loss through the deduction rather than waiting for the debtor to repay what he owes. The IRS then assumes the responsibility of collecting the remainder of the loan from the debtor.

    Make a copy of the original loan agreement between yourself and the debtor. You must demonstrate to the IRS that you fully expected the debtor to repay the amount she borrowed.

    Make copies of any proof that demonstrates that the debt is worthless. Although proof is not required, it supports your claim that the debt was once valid. An example of proof is a certified copy of a court judgment against the debtor for the unpaid loan balance.

    Subtract any funds the debtor has already paid you from the total amount you originally loaned him. The resulting number is the amount of your bad debt deduction.

    Enter the amount of your bad debt deduction in Part One of Form 1040 Schedule D, Capital Gains and Losses.

    Write a statement to the IRS that includes any details about the loan that were not included in the original loan contract. If you do not have written proof that the loan debt is worthless, you may use the letter to notify the IRS of the reasons why you believe the loan is uncollectible.

    Attach your written statement to Form 1040 Schedule D, Capital Gains and Losses. Include these documents with your taxes when you file your return.

    Send the debtor a Form 1099-C, Cancellation of Income form, if the loan balance totals $600 or more. Once the debtor receives the Form 1099-C, she must include the unpaid balance of the loan in her annual income when she files her tax return.

Tips & Warnings

  • You do not have to wait until the debt becomes worthless to claim it as worthless. If you have a legitimate reason to believe that the debtor will not be able to make payments on the debt, such as if he files for bankruptcy, you may assume the debt is worthless and claim it as a tax deduction.

  • You cannot claim a bad debt deduction if you merely guaranteed a loan. You are only entitled to a tax write-off if you personally provided the loan funds.

  • You cannot claim attorney fees, court fees or other additional fees on the loan as a tax write-off since these fees were not a portion of the original loan amount.

How to Get a Guaranteed Unsecured Personal Loan


How to Get a Guaranteed Unsecured Personal Loan thumbnail

A guaranteed unsecured personal loan is a special type of loan that, unlike bank loans, does not require you to have any collateral. They are designed for people who need short-term loans and do not have a home or car that they can use as collateral. This makes them useful if you have poor credit or only need a very short-term loan. When you need to get a guaranteed unsecured personal loan, the process to do so is very easy.

    Visit your local payday loan store. In recent years, thousands of these institutions have sprung up all over the country. The primary benefit to getting a guaranteed unsecured personal loan at a brick-and-mortar store is that you will be able to complete the entire process and get your money all in a single visit.

    Search for a cash advance loan website. You can find many websites that will provide you with a guaranteed unsecured personal loan. Once you complete the process, the payment will usually appear in your bank account in the next day or so.

    Fill out the initial application. This will contain your primary contact information, as well as some basic information regarding your financial situation. In some cases, you may be required to give a secondary contact person that can be reached in the event that they need to contact you and are unable to do so.

    Determine a repayment method. Depending on the method you choose, you may be given a few different options. In the case of a payday loan store, you will be required to leave a check behind in the full amount of the loan. When the loan comes due, the check will be cashed. If you go with an online vender, the amount will probably be withdrawn automatically from your bank account. In some cases, you may be given the option of repaying the loan over time.

Tips & Warnings

  • A guaranteed unsecured personal loan is likely to have a high interest rate. In order to avoid building up large finance charges, it is best to pay it off as soon as possible.

  • Before assigning a person to be your secondary contact person, be sure to let them know ahead of time.

  • Before providing a website with your financial information, do a bit of research to ensure that it is a legitimate site.

How to Remove Yourself as a Cosigner of an Auto Loan

A co-signer of another person’s auto loan may eventually want to be relieved of that agreement. If you are a co-signer and apply for your own loan, a lender might decline the request based on your high debt-to-income ratio. Removing your status as a co-signer lowers your debt ratio, which can result in a loan approval and increase your purchasing power.

    Review the loan agreement for a co-signer release clause; the document may indicate if you are eligible to remove your name. Co-signer release clauses permit co-signers to take their name off the loan once the primary signer makes on-time payments for a set number of months. If you do not have the agreement, contact the lender to see if it will remove your name.

    Ask the primary borrower to refinance the loan and, in the process, remove you as co-signer. If the lender does not allow co-signers to take their name off loans, contact the primary signer and express that you want your name taken off the loan as co-signer. The primary borrower must refinance the auto loan to release you from the obligation; this requires him to apply for and be approved for a new auto loan. A lender will check the borrower’s credit score and income before making a decision.

    Confirm that you are no longer a co-signer by checking your credit report. If the primary signer qualifies for a loan on his own, the new auto loan supersedes or pays off the original one. Check your credit report after a couple of months to confirm that the original loan — the one for which you co-signed — is paid. Get your report from AnnualCreditReport.com.

Tips & Warnings

  • If the borrower has a low credit score and a low income, the lender might not approve the refinancing. If the borrower is unable to secure refinancing, you are obligated to remain the co-signer until the loan is paid off.

If I Have Bad Credit Can I Get a VA Loan?

When you have served in the military, you can receive several benefits, such as the ability to get a loan through the Veterans Administration. If you have bad credit, you may fear that you will not be able to qualify for a VA loan. However, with this kind of loan, you may be able to qualify even if your credit is not the best.

Credit Score Requirements

    If you are interested in qualifying for a VA loan, you do not have to meet any specific credit score requirements. Each lender has its own requirements for the minimum credit score that it will work with. As a general guideline, if you have a credit score of 570 or higher, you could qualify for a VA loan. With most mortgage programs, your credit score must be much higher than this to qualify for a loan. This allows those who have had credit trouble in the past to qualify for a loan.

Debt-to-Income Ratio

    When you apply for a mortgage, lenders will look at your debt-to-income ratio to determine if you are eligible for a loan. With most traditional loan programs, you must have a debt-to-income ratio that is lower than 36 percent of your pre-tax income. This includes all forms of debt other than your mortgage payment. With the VA loan program, you can have a debt-to-income ratio of 41 percent and still qualify for a loan. This allows those with a little more debt on their record to still qualify for a loan.

Bankruptcy

    If you have filed for bankruptcy, you may think you cannot qualify for a mortgage of any kind. While this may be true with a regular mortgage for several years after filing, the VA allows consumers to apply for a mortgage much sooner. If you filed for Chapter 7 bankruptcy, you have to wait two years before you can qualify for a VA mortgage. If you file for Chapter 13 bankruptcy, you only have to wait one year before you can apply for a loan.

VA Guarantee

    The reason that lenders are willing to lend to individuals in these situations is because of the guarantee that is provided by the Veterans Administration. With these types of loans, the VA stands behind them and guarantees them for the lender. If the homeowner defaults on the loan, the VA will pay back a certain amount of it to the lender. This lowers the amount of risk involved for the lender and makes it a much more attractive deal for them.

How Can I Get an Unsecured Loan?


How Can I Get an Unsecured Loan? thumbnail

Generally you can get an unsecured loan if your credit rating and income are suitable to a prospective lender. Unsecured loans are generally harder to get than loans secured by collateral such as personal property. Unsecured loans pose more risks to lenders since they have no tangible property to secure the loan. Typically, unsecured loans have higher interest rates and less favorable repayment terms as well.

Financial Preparation

    Much of the work necessary to getting an unsecured loan, especially one with a good rate and terms, takes place long before you go about getting one. Since no collateral is in play, lenders are mostly concerned with your credit history and income. Your credit score tells the lender about your reputation and success in paying off other loan commitments. Your income and debt ratio analysis helps the lender determine your practical ability to repay the loan. Financial responsibility is the best way to get an unsecured loan when you need one.

Compare Options

    The first thing to do when seeking an unsecured loan is to compare the rates and terms offered by various lenders. You can often do this through lending sites online that allow you to search rates of various lenders at once. You can also go to individual bank and lending websites to learn about their personal loans and rates. Most lenders also tell you what is required to get an unsecured loan.

Apply

    Once you have identified a lender or a groups of lenders you are considering for a personal loan, complete a loan application. Applications typically ask for your basic contact information including Social Security number for a credit check, total income and bank information. You can often apply online or in a bank or lender’s branch office. Small, short-term loans are often reviewed within a day or two. Higher amount, longer-term loans may take several days or weeks to review.

Loan Processing

    Once lenders review your loan application, they indicate they are able to offer you financing or reject the loan. An offer for financing would likely include a maximum loan amount, interest rate and possible options for repayment. Even if a lender offers you an unsecured loan, you may not want to accept it if the interest rate and repayment terms are not financially wise. You have to consider your benefits of getting the loan against the short-term and long-term financial consequences of acceptance. If you agree to the loan, you complete paperwork to close on it.

What Are the Guidelines for Mortgage Loan Modifications?

Foreclosure alternatives are plentiful, but each mortgage assistance program comes with a specific set of stipulations. Loan modification helps homeowners afford the cost of their mortgage payments by permanently restructuring the loan. If you want to pursue a mortgage loan modification, research your options before applying for help. Failure to meet the terms of the modification program can result in foreclosure.

Loan Modification

    Loan modification is a viable option for homeowners with predatory mortgage loans and those experiencing significant financial hardship. Loan modification is a procedure for changing the terms of your mortgage loan so that it creates affordable payments. For example, your lender might agree to extend the life of your mortgage loan or add your past due amount onto your principal to bring your mortgage current. Actions taken by the lender vary based on your situation. However, there are minimum requirements you must meet before submitting a modification proposal.

Income

    To qualify for a loan modification, you must have a source of income. Lack of income means you are unable to meet the new terms of your mortgage loan. Changes to your loan do not become permanent until you undergo a trial period. During this trial period, lenders assess your ability to make timely payments. Lenders request documentation of your income in the form of pay stubs unless you are self-employed. If you are self-employed, copies of your recent tax returns and bank statements may be required instead.

Financial Need

    Loan modification is not a luxury. You must have documented financial need to qualify for the program. Whether you are already behind on your mortgage payments or in danger of falling behind, lenders use your household budget information to make a determination of your level of need. The goal of your budget is to illustrate how lower payments will help you regain financial stability. If your budget indicates you are unable to make the new payments as a result of overspending or too much debt, you may be denied a loan modification.

Primary Residence

    If your property is a second residence or investment property, it is not eligible for a loan modification. Loan modifications are reserved for homeowners attempting to save their primary residence from foreclosure. Pursue alternative mortgage assistance options for help with second residences. Fewer resources are available for homes that are not your primary residence, but some options exist. For example, you may qualify for forbearance on your mortgage loan if your financial hardship is temporary. Forbearance occurs when your mortgage payments are temporarily suspended or reduced.

Mortgage Grants for the Disabled


Mortgage Grants for the Disabled thumbnail

Disabled American citizens are often at the mercy of government programs as they are unable to work and struggle to find affordable housing. While there are many private low cost programs designed to help low-income borrowers, the best place to begin a search for a mortgage grant for a disabled citizens is at the federal level.

Disability.gov

    Disability.gov is a government website designed specifically for disabled citizens seeking assistance with employment, housing, education, health care and civil rights. (Find a link in the Resources section.) In addition to Social Security and disability payments from the federal government, this arm of the government provides a customized, affordable housing service for those suffering from a physical or mental disabilities.

CHSP

    CHSP, or Congregate Housing Services Program, is a government program that offers financial assistance to elderly and disabled citizens who can no longer sufficiently afford housing. This program, which began in 1978, has provided mortgage and financial assistance to tens of thousands of eligible citizens. This program continues today with at least 51 participating organizations in the private sector. See the Resources section to check eligibility.

CDBG

    The CDBG, or The Community Development Block Grant Program, is a community-oriented government assistance program. The grants awarded by this arm of the Department of Housing and Urban Development are used by local communities to subsidize affordable housing and job creation. See the Resources section for eligibility.

USDA Rural Development

    The United States Department of Agriculture offers assistance programs to provide housing and mortgage grants to rural residents with disabilities. Specifically, the USDA offers a direct loan program to qualified residents. These loans are low cost with low interest rates and give residents with disabilities the opportunity to own homes.

Disabled Veterans

    The Veterans Affairs office similarly offers mortgage loan programs to disabled veterans. Such programs are government-sponsored, but they are managed and executed by qualified private lenders. The mortgages available through the VA program are low cost and geared toward extending homeownership among low-income communities.

How Can I Get a Home Loan With a Credit Score Lower Than 500?


How Can I Get a Home Loan With a Credit Score Lower Than 500? thumbnail

Homeownership allows you to build equity in an asset and re-build credit by making timely payments. If you have a credit score lower than 500, it will be very difficult to secure a mortgage loan. Private investors, credit unions and co-signers, however, make securing a loan a possibility. Since lenders use “risk based lending,” interest rates on these loans will be significantly higher.

    Contact a mortgage broker. Ask the broker about private investor loans for high-risk borrowers. Investors pool money to provide loans to people struggling with poor credit.

    Apply for a mortgage with credit unions. Credit unions usually make loan decisions at the branch. If you have special circumstances, such as serious medical illness or struggles with job loss, the lender may consider these circumstances. It’s important to focus on what you’ve done to turn your credit around. For example, for the past 12 months you haven’t had a late payment on any debt obligation. Or, after being unemployed for a year, you’ve been working for the past 13 months.

    Secure a co-signer. If you’re experiencing a challenge securing a mortgage, ask the lender about using a co-signer. A co-signer is a person with good credit who will also put her name on the loan. If you default on the loan, this person is on the hook for the debt obligation.

    Ask about fees. Even with poor credit, some fees are worth negotiating. For example, fees handled in-house, such as application fees or processing costs, are the most negotiable. Ask the lender to reduce or waive these fees to minimize closing costs.

    Refinance your loan to a lower interest rate product. After building a positive credit history, check on your credit score. A credit score can be obtained through an annual credit report. Ask the lender to refinance your loan to a lower interest rate product. Some lenders will do this to retain your business.

Tips & Warnings

  • If you have trouble securing a mortgage or interest rates are too high, work on improving your credit score by making timely payments on debts and paying down debt obligations. This will raise your credit score. If you can improve your credit score to 620 or higher, you will qualify for an FHA loan, which is backed by the Federal Housing Administration.

  • People with a low credit score will be subject to the highest interest rates. High interest rates drive up monthly mortgage payments. Consider working on improving your credit score before applying for a mortgage to significantly reduce the cost of financing.

How to Get Prequalified for a Home Loan

The first and most important step in buying a home is getting prequalified for a home loan.

    Get a referral for a lender or mortgage broker from a friend, relative, co-worker or real estate broker.

    Provide the following information: gross monthly income and total monthly payments (car payments, minimum monthly payments on credit cards, child support payments and all payments you have to make every month).

    Get your “ratios.” You or your lender can add all your debts together and compare that number to your income to arrive at your total debt-to-income ratio. Your percentage should be under 36 for the best interest rate. The lower the number, the better (see Related eHows).

    Give your lender authorization to pull your credit report. The report should include a FICO (Fair, Isaac and Co.) score, which is the credit scoring system most widely used by lenders. (A credit score is a system of calculating the risk of lending to you based on several factors, including how long you’ve been at your present job, your occupation, how long you’ve been at your present address, the ratio of your balances to your available credit lines, whether you are a home owner, the number of recent inquiries into your credit, your age, the number of credit lines you have, the years you have had a credit in the credit bureau database, and such derogatory items as bankruptcy, collections against you, foreclosures and slow pays.) A FICO score of 680 or better is considered “A+” (excellent), and with good ratios and other positive factors should get you the best interest rates available.

    Have a lender prepare a letter of prequalification for you. The letter should state that your initial financial and credit information has been reviewed and looks good, though it will also state that the letter is not a guarantee of a loan.

Tips & Warnings

  • Once you find a home and are ready to write an offer, have your lender or mortgage broker write a letter of prequalification only for the loan amount you’re seeking with that offer. That way the seller doesn’t know if you can afford more.

  • If you’re self-employed or have been on the job for less than two years, the lender may require additional information.

  • You don’t have to use the same lender that prequalified you. Shop around and compare rates.

  • Prequalified is not the same as preapproved. In a hot market, you’re going to want to go the extra step and get preapproved for a home loan before you make an offer on a home.

  • Lenders consider many factors in prequalifying you for a loan, including credit, income and debt, type of property and amount of down payment.