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Would you believe that it is usually much harder to qualify for a gas card than it is to qualify for a home loan? Like many, you may have already disqualified yourself from buying a home due to bad credit. Little do you know, many brokers and lenders may consider you an "A" buyer. Even if your bad or insufficient credit disqualifies you as an "A" buyer, a home loan at standard interest rates may still be within your reach.

Homes are very secure collateral. Because of this, the lenders feel more comfortable lending you money against the property. As opposed to unsecured credit lines, the lender will be primarily interested in your job security, debt to income ratio, and ability to pay a reasonable down payment. Your credit report will only represent minor role in your mortgage approval.

On the other hand, much depends on the mortgage broker whom you choose. For example, you may walk into a bank, apply for a mortgage loan, and be turned down flat. On the same day, you could step into the office of an independent mortgage broker, and he will pre-approve you for an "A" mortgage. Each mortgage broker uses one or more lenders to fund the home loans that come to him. The mortgage broker's job is to match you with the appropriate lender. For this service, you or the home seller will pay the mortgage broker "points." These points are equal to percentage points of the loan amount. If you are paying your broker "2 1/2 points" on a $120,000 home loan, that will come to a $3000 payment to the broker.

There is nothing wrong with making the mortgage broker (and your real estate agent) earn their fees. Almost invariably, there will be problems that arise with your mortgage. Your mortgage broker and real estate agent are responsible for coming up with creative solutions to those problems.

Some mortgage brokers will look at your less-than-perfect credit and suggest that you accept a "B," "C," or "D" paper mortgage. This means that the loan will require a larger down payment, a higher interest rate, better debt to income ration, and, of course, more points for the mortgage broker. These high-risk loans are not very good deals. Many times, with the right mortgage broker, you could have qualified for an "A" paper mortgage. Remember that a very small difference in your interest rate will cost you tens or hundreds of thousands of dollars. Do everything in your power to qualify as an "A" paper lender. Even if your broker encourages you to go with the high-risk mortgage, do not cave in. You have other options.

Negative Credit Items That Can Kill a Home Mortgage.

• A bankruptcy that has taken place in the last one year usually represents a deal-killer. With some mortgage brokers bound by less permissive guidelines, even a two-year bankruptcy will kill the deal. The good news is that the right lender will not care if you declared bankruptcy as long as it is at least one year old.
• Any unsatisfied court record, such as a tax lien or judgment, will become an obstacle to your loan. Sometimes, if you can just show your broker that you have satisfied the lien or judgement, they will forgive one court record. Otherwise, you will need to restore your credit a little before you apply.
• Any kind of outstanding, delinquent debt will pose a major obstacle. Even if you have paid the debt within the last twelve months, it will probably still be a problem. Unpaid collections, charge offs, deficiencies on repossession, remaining balance on a foreclosure will all destroy your chances of "A" paper. If you go to pay the debt immediately before you go to get a home, the creditor who you are paying will not likely agree to remove the "Paid collection" listing on your file. In order to pay outstanding, delinquent debt such as this without jeopardizing a home loan, you will require the assistance of an attorney (Select the icon at the bottom of the page to find out more.) The best solution is to simply settle the debt a year before you intend to apply for a mortgage. If you do this, the "Paid collection" notice will be one year old when you go to apply and the right mortgage broker will be able to get you into "A" paper.
• A foreclosure in your past is the ultimate black mark when you are applying for a home loan. If you have a foreclosure, you will need to delete that listing from the credit report before you can qualify for "A" paper (see Repair Your Credit).
• Any late pays that have happened within the last year will also present a problem. You can usually explain one or maybe two thirty-day late pays, but if you have more, you will need help getting them removed. You can try to contact the creditor reporting the late pays and asks them to remove the listing. If you have a decent reason why the late pay is a mistake, then the creditor might delete the item for you. Do not bother to tell them why you were late. They will not care what happened to you. Your only salvation will be to convince the creditor that there was a mistake. It was their fault that you were late. If you are not making progress with your creditors, you will need the help of an attorney. You will be amazed at how easily a law firm can get your creditors to come around to your way of thinking.

When a mortgage broker prepares your file for the underwriter (the lender), he will use a Standard Factual Report to check your credit. The Standard Factual Company can aid in the deletion of negative credit listings. If you get a creditor to agree to remove a derogatory listing, all you need is a letter or a phone call from the creditor to the Standard Factual company and the derogatory credit item will disappear from the Standard Factual report (not the credit report, though.)

Most lenders will allow several negative items if you can adequately explain them. However, they only want to hear explanations that are medically related. If you can show the lender where an accident or illness caused a late pay or collection, they may let the derogatory listing slide.

The good news is that a lender can overlook any satisfied, derogatory credit listings that are over one year old (besides a foreclosure). You or a practiced law firm can usually overcome any problematic derogatory listings. Do not accept high-risk paper until you have exhausted all of your options. Remember that you can save yourself tens of thousands of dollars by investing a little now to perfect your credit before you go into a new home.

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