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If youre thinking about buying a home but have declared bankruptcy in the past, dont give up hope. There are still ways for you to be able to find a loan, even if your credit history is less than sterling.
Lenders make various kinds of home loans, normally graded from “A” all the way down to “D.” The more problems that show up on your credit report–slow pays, late pays, or even bankruptcy–the lower the grade of loan youll be able to qualify for. If youre employed and have a relatively good income, youll get better terms, even though you wont qualify for a “Grade A” loan. The longer youve been at your current job, the better, because it shows stability.
Here are some general rules about the qualifications lenders look for before giving consumers the various grades of home loans:
To qualify for an AA loan, lenders must see no late payments or any other difficulties when they look at your credit history for the past two years. First, well look at the top of the line loans, all in the A grade category.
To qualify for an A+ loan, you can only have one late payment in that two-year time period. An A- loan is available to borrowers whose credit report shows two or three late payments, and have at least two credit cards. Borrowers in the A category will normally be qualified for all the various perks that lenders offer, such as low interest loans and low down payments.
But if youve had a bankruptcy in the past, youre choices are more limited, and youll generally need a larger down payment.
For instance, a grade B loan can be obtained by borrowers whove been at their jobs for a reasonable length of time in as little as 18 months after declaring bankruptcy, assuming that theyve been able to reopen at least one line of credit during that time and kept it current. Usually the lender will require 15% down, and the best interest rate the borrower can generally get is 6-7%.
A grade C loan will require good, steady employment, and may be available within a similar time frame as a B grade loan. The interest rate is generally higher, currently at about 8.5%, and the down payment requirements are considerably higher. For instance, a lender will normally require 20% down on $300,000 house or 40% down on a $500,000 home.
Youll need a significant amount of down payment to qualify for a grade D home loan, as well, and the interest rate will normally run between 9.95-10.7%, depending on your overall credit score. If youre employed and your credit score is above 500, you can put down as little as 30% on a $300,000 home or 45% on a $450,000 house. If youre self-employed, however, youll need 45% down just to buy a $250,000 home.
If youre hoping to purchase a home, talk to your local lender to see what their criteria are for their various grades of loans. Even if youve had a bankruptcy in your past, that doesnt mean you cant buy a home. It just means it may take some time, youll need to establish a strong employment history, and youll need to save more money for a down payment than if the bankruptcy hadnt occurred.
(c) Copyright 2004, Jeanette J. Fisher. All rights reserved.
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Article Source: EzineArticles.com