It is not easy to qualify for a mortgage if you have a poor credit score, but it is not something that is impossible to achieve. The first key is knowing what lenders seek and why credit score plays an important role in the eligibility for a home loan.
Your credit score represents the way you have been repaying your debts and how likely you are to repay your mortgage. Credit scores that are available and most frequently used are those that vary between 300 and 850. In general, the higher your score is, the better. This depends on the conventional type of mortgage where most of them standard a credit score of between 620 and 640. If you score below that it will be very difficult for you to get approved.
However, there are particular mortgage offers for individuals with a lower credit score. The Federal Housing Administration offers mortgage insurance to borrowers with credit scores down to 500. Similarly, credit requirements are also relaxed in VA and USDA home loans. Similarly, most of the lenders have today come up with their own portfolio of loans for those applicants with poor credit scores. So, it is not impossible, as some choices are available if approached correctly.
How to Secure a Mortgage Loan with a Poor Credit Score
If your score is below 650, either have it brought up or be ready to pay for it when you are applying for a mortgage. Useful tactics include:
Pay Down Debt Debt ratio compares your total obligations with your income and assets, and these are oftentimes used by lenders. Reduce this ratio by paying as much as you can on your credit card balances and other obligations before applying for a mortgage. This can offset a low score.
Increase Your Down Payment It is advisable to pay at least 20% of the cost of the home to show the lender that you are financially vested. It can offset a low credit score during the approval process. You need to compare down payment programs of different lenders to identify the lowest offer that you like.
Explain Credit Issues When one has credit dings, honesty regarding what lead to such may assist in some form or the other. Make sure to submit documents proving the previous delays were caused by temporary difficulties such as job loss or sickness and they are no longer affecting the individual.
Add a Co-signer If your credit score is below 620, the second way is to include a co-signer with better credit history. This places their good credit record for your mortgage application. Ensure that the co-signer grasps the idea that they are also bound to the responsibility of making payments.
Shop With Specialty Lenders This is because other non-big bank players such as online lenders, credit unions, community banks and mortgage brokers may still present more flexible credit standards. They have special mortgage products which they offer to their customers with low credit scores.
Provide Additional Documentation Providing the lender with more assurance that you will be capable of handling the payments can be helpful in getting approved. It could involve providing proof of timely rent payments, utility bills in the landlord’s name for several years, or the renter having a large amount in retirement or investment accounts.
Preparing Your finances The following are other tips to consider when applying for mortgage with bad credit The following are other tips to consider when applying for mortgage with bad credit: Lenders will look closely at these key factors:Lenders will look closely at these key factors:
Employment History: Must have worked at the same place or in the same career area for not less than 2 years. Submit W2s and recent paystubs. Any missing areas or any changes that have recently occurred will require explanation.
Income Verification: Any form of income including employment, self-employment, pensions, and investment income be supported by tax returns, bank statements, or anything that proves the consistency of income. Underwriters need to see that you have regular and predictable income to cover your living expenses as well as your debts.
Down Payment Funds: Lenders will also require you to provide proof of source of your down payment, through balance statements proving that you have the required amount. Ensure that the money is mature in your accounts and recognizable.
Minimal Other Debt: Do not apply for any other credit cards, auto loans, etc. , that add to your DTI before applying for a mortgage. Uncollectible debts should be paid down as much as possible.
However, obtaining a conventional mortgage with low credit scores will not be very easy but will demand enigmatic effort. However if proper procedures are followed and accurate papers relating to financials are submitted, it is not a dream to own a house.
