Thursday, January 10, 2008

Bad Credit? Get a Home Loan You Can Afford

When shopping for a bad credit mortgage it's important to consider your whole financial situation before settling on a new home. You might find that you can qualify for more home than you thought--but can you afford it?

Bad Credit Mortgage Tips: Do the Math

When you apply for your bad credit home loan your mortgage lenders consider a number of factors to determine how much they will lend you. Typically, the most important items they'll be looking at are:

Your income

Your credit history

Your monthly expenses

Whether you are single or will have a co-signer

A general rule of thumb in figuring out how much you can afford on your home loan is a mortgage payment-to-income ratio of about 30%. If you make $2000 a month you qualify for a mortgage payment of about $600. Hard money lenders may approve you for a considerably higher payment, but do you really want half your take home pay going to house payments?

Be Safe and Smart

Use a mortgage calculator to determine how much down payment you will need, as well as how much your monthly payments will be. This kind of homework prior to applying for your bad credit mortgage could make all the difference in avoiding a home loan that will cost you too much.

Consider All the Factors

When trying to figure out how large a home loan you can afford consider all the factors involved. Remember to consider all of your monthly expenses including:

Student loans

Car payments

Credit cards and loans

Savings and retirement

Child support or alimony

Work With Your Mortgage Lender

Your mortgage lender shouldn't be qualifying you for a home loan you can't afford, so work with your loan officer and provide accurate information to find the right number. By gathering all your financial details together before applying for your bad credit mortgage you save yourself some time and make it easier for your loan officer to help you. Taking this extra step can really help smooth out the mortgage application process and help you get into a bad credit home loan that's right for you.

By Gabriel Traverso
Mortgage Credit Problems Columnist

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