Tuesday, June 12, 2012

Get A Home Mortgage Loan With Bad Credit Through Understanding The Fico Credit Score

People that want to get a home mortgage loan with bad credit are often at a loss as to where they should begin their search. They have several questions: What other qualifications are necessary in receiving a home loan with bad credit? How big of an impact will a bad credit score have on my ability to receive a home loan? What can I do to improve my chances of qualifying for a mortgage loan?

Bad credit is not as simple as many people seem to think, however. Determining one's eligibility for a home loan is so much more complicated than looking at a credit score. Therefore, knowing the extent to which FICO credit scores impact home loan eligibility is important. This article will review the extent of that impact and fill you in on what you can do to help yourself get a home loan with bad credit today.

Know Your Credit and What It Means

The first step to understanding the process of receiving a home loan with bad credit comes from assessing the real state of your credit score. Basically, you will need to know what your credit score is, numbers-wise, and what that means in reality.

For starters, a FICO is short for the Fair Isaac Corp., the three-number score that it generates is based on a rather complex formula that looks at many different factors concerning your financial life. The most important of these two factors is your asset to debt ratio (or how much you own versus how much you owe) and your payment history on past accounts. Chronic late payments, defaults, bankruptcies, foreclosures, etc. can seriously harm your credit score.

Before you look for a home loan, you need to assess your bad credit score through a review of your full credit report. This document will outline all the elements that the Fair Isaac system uses to determine your score and allow you to check them for discrepancies and misrepresentation.

Why Credit Matters in the Home Loan Industry

Once you understand the details of your credit score you will see why this number is so important to lenders. When you have a lot of debts, the chances of you being able to afford a home on top of everything else is seriously questionable. A home mortgage is likely the largest loan you will take, so it is clearly important to make sure you can afford it.

Similarly, a history of making late payments and loan defaults will also impact the lender's decision. If a lender feels you will not be responsible or make enough money to afford a home loan he is not likely to extend it to you.

Making a Change Is Important

If you are serious about buying a home there are several steps that you can take, starting today, to make that a reality. You need to fix your bad credit score in order to get the best interest rates, which can be done in a number of ways:

- Consolidate debt through a bad credit personal loan.

- Make sure you rebuild your credit history following a bankruptcy or a foreclosure.

- Write out and adhere to a budget which takes all of your debts into account and works to pay them off.

- Go to a credit counselor.

By working to improve your bad credit, home mortgage loans will be easier to acquire in the future. There are many lenders online who are accustomed to working with borrowers whose credit score is poor. They may be able to find you a home mortgage loan with bad credit or at least direct you on the proper path to get one in the near future.

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