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You will need the same documents for a sub-prime (bad credit) mortgage as you do with a regular mortgage. The one major document you will need is a clear letter of explanation (LOE) of your current credit situation. While you must fight the temptation to be overly dramatic, with tear stains, etc. But you must effectively “paint a picture” of the reasons for your current plight. A mortgage underwriter will put great weight on your LOE in his/her recommendation for approval or rejection.
Some people believe that simply because the mortgage lender will earn a higher interest rate because of your bad credit situation, you will be approved no matter what the documents indicate. This is not true. Mortgage lenders cannot worry about the extra income to be earned on a bad credit mortgage loan if they have doubts that their loan will be repaid. You must give them confidence that your problems are over, even if your credit report does not yet reflect it. They must believe that your current situation has improved and allows you to repay their loan.
You will still need your W-2's or 1099's from last year, probably 2 current pay stubs, verifications of your current mortgage and other outstanding loans, and evidence of the ability to escrow tax and insurance payments or at least the ability to make all principal, interest, taxes, and insurance (PITI) payments going forward. If you convince your lender you can make the required payments AND that your credit problems are a thing of the past, you should have the ability to get the mortgage you need.
|Jennifer Mathes, Ph.D.|