There are many people out there who think that bad credit is the "death knell" for their ability to obtain a loan. While this may be true in the sense of a traditional loan, there are alternatives available - hard money loans or bad credit loans.
There are two general ways to go about finding a bad credit lender - through a mortgage broker or directly with a hard money lender.
If you go the mortgage broker route, be up-front and honest regarding your financial situation. Chances are they have heard your situation before and, rest assured, they have heard of worse situations than yours. The big question is whether your broker knows hard money lenders directly. Also realize that brokers are going to be taking 1-2 points on the deal (they don't work for free). The hard money lender will be adding this into their fee and point structure - all fees, points, money, etc. HAVE TO BE DISCLOSED to the borrower in the loan documents. On the plus side, a broker can help you find a quality hard money lender and guide you through the basic bad credit loan process.
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The other road is to find a hard money lender directly. Be careful here - there are hard money lenders that charge very high rates with strict terms that be difficult to meet. Some bad credit lenders are looking to fund loans so that they may acquire the property down the road. One way to avoid these loan sharks is to ask for a couple of phone references to previous clients or borrowers. Give these people a call and tell them that you were considering a loan and wanted to find out about their experience. You can learn a lot about the way a hard money lender does business from their previous clients.
Even when you find a reputable bad credit loan lender, expect to pay higher rates than you would with a traditional lender. While these rates may seem high, they are probably the best solution to getting back on the road to financial security. Make sure that your loan term is no longer than 18 to 24 months. During this time, you need to work hard to rebuild your credit so that when you go to refinance your loan, you will qualify for a sub prime or alt A loan.
The thing to remember about applying for a bad credit loan is that you have nothing to lose. Even if you do not qualify for a bad credit home loan, you will at least learn what steps you need to take in order to qualify down the road.
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