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What can I do if I have bad credit but I want to obtain a home loan?
If you have bad credit, it generally cannot be avoided on your credit report
and can affect whether or not you're approved for a home loan. However,
you can help to correct credit errors or misunderstandings by writing a
letter to the creditor or by writing letters to be included within your
credit reports. Sometimes, a letter explaining a sudden loss of a job,
a lay off, or a long-term illness will change the view of the lender in
reviewing your credit report. Additionally, you should provide any
documentation proving your reason for failing to pay on your debts. By
law credit reporting agencies are required to include letters of
explanation along with any documentation proving such explanation with
the credit report. As a general rule, a bad credit report usually stays
on your record for a period of 7 years (10 for bankruptcies).
Lenders
have extended loans to home buyers with bad credit, charging them
sometimes significantly higher rates of interest. These loans are
called subprime loans. Responsible, in part, for the financial crisis
of 2008, subprime loans have become harder to get due to stricter
federal regulations. Borrowers, unable to pay their mortgages in a
depressed economy with rising interest rates, now face foreclosure.
Your best bet may be to wait a few years to buy and focus on rebuilding and improving your credit in the meantime.
(Reviewed 11.4.08)
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