For people with unimpressive credit rating, applying for a mortgage loan can be a big challenge.

Since a home loan involves a large amount of money, it would be more difficult to convince a lender to extend you credit if you have a history of bankruptcy or bad credit.

Can you still get a mortgage loan if you have bad credit?

The good news is, yes. There are lending companies in the market that offer subprime mortgage. In this article, let’s discuss the preparations that you will need to do to get approved for a bad credit mortgage loan.

Permanent Employment.

With a low credit rating, a potential lender would need some assurance that you are capable of paying back the loan. A mortgage requires longer repayment term so you need to show proof that you have a permanent job that can support you on a long term basis.

If you are in-between jobs, it will be very difficult to get a home loan. On the other hand, if you have just been hired with a company, it is a good idea to wait until you are past the Probationary Period before submitting your mortgage loan application.

Down Payment.

To compensate for your poor credit standing, you need to be able to provide a significant amount of down payment. Ideally, you need to save for at least 20% to 25% upfront payment for a bad credit loan.

Thus, if you plan to purchase a home worth $300,000, you need to be able to submit at least $60,000 or higher to get approved. And because $60,000 is a really huge investment, it gives a lender more confidence that you will do your best to complete your loan payments.

Credit Report.

Do not just rely on what you hear when it comes to your credit history as some lenders may try to take advantage of your situation by saying that you have a much lower score than what really is in your report.

Remember, your exact rating can make a big difference with the interest rate of your loan. Before applying for a mortgage loan or any type of loan for that matter, consumers are advised to review their credit reports and be aware of their exact rating.

Order a copy of your report from each of three major credit reporting agencies. Check for possible errors or inaccuracies. Remember that even the smallest incorrect detail can pull down your final score by a few points.

Debt-to-Income Ratio.

Your credit cards, car loan, personal loan and other debts will be considered when a lender reviews your mortgage loan application. Many lending companies would require an average of 40:60 debt-to-income ratio which means your income should be at least 20% higher than the total amount of your debts, including your pre-approved mortgage.