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How to Apply for a Home Loan With Bad Credit & Low Income

by Lisa McQuerrey, Demand Media

    Successfully applying for a home loan when you have poor credit and low income can be challenging. In general, mortgage lenders want to see applicants who are fiscally responsible, have a solid income and a reputation for paying their bills on time. In the absence of these general requirements, you'll need to take a different approach to seeking out home financing.

    Items you will need

    • Bank statement
    • Tax returns
    • Proof of employment
    Step 1

    Determine what you qualify for. Before you start looking at houses or applying for mortgages, request a copy of your credit report, correct any mistakes on the report and meet with a mortgage lender to determine your eligibility based on your credit score and your current income. This gives you an idea of the numbers you're working with, both in terms of how much house you can qualify for, and what your interest rate will be.

    Step 2

    Save money for a large down payment. The more money you can put toward a down payment, the more likely a lender will be to consider your loan application, even with your low credit score and poor income on the table.

    Step 3

    Compile pertinent paperwork. When you apply for a mortgage, you’ll fill out a loan application and the lender will ask to see proof of your income in the form of previous income tax returns and your past several months of bank statements. A lender will also want to know how much money you owe in terms of other debts like credit cards, car loans and student loans. Gather this paperwork as part of the loan application process.

    Step 4

    Comparison shop with different mortgage lenders. Start with the bank or financial institution you have an existing personal relationship with. You might have to approach several different lenders before finding one willing to make you a loan based on your financial circumstances and your credit history.

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    Tips

    • Just because you can buy a house with a low income and a poor credit rating doesn't mean it's a smart financial move. You will undoubtedly be charged a higher-than-average interest rate, and if you default on your loan and end up in foreclosure, it can negatively impact your financial picture for years to come. You might be better served cleaning up your credit, saving money and building a solid income before making such a sizable purchase.
    • Consider asking someone with solid credit and a decent income to cosign a home loan for you. If you're responsible and pay off your loan installment on time, this can help you rebuild your credit score.

    About the Author

    Lisa McQuerrey has been a business writer since 1987. In 1994, she launched a full-service marketing and communications firm. McQuerrey's work has garnered awards from the U.S. Small Business Administration, the International Association of Business Communicators and the Associated Press. She is also the author of several nonfiction trade publications, and, in 2012, had her first young-adult novel published by Glass Page Books.

    Photo Credits

    • Hemera Technologies/AbleStock.com/Getty Images

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