Before a lender approves you for a mortgage, the credit of the borrower is considered. If the borrower has bad credit, it may compromise the chances of getting the mortgage because the lender must consider the possibility of the borrower defaulting on repayment.
However, it is still possible to apply for a mortgage with bad credit. Here are some tips to this effect;
Obtaining your credit score before applying
To qualify for a mortgage, it is imperative that you obtain your credit score. This credit score is a three-digit number gotten from your credit history and is also used by lenders in the event of your applying for a credit card. This three digit number is an essential factor in applying for a mortgage from a lender. Your credit score can be gotten for free by contacting the credit card company you use. The bank can also issue your credit score, however, a $20 fee is paid for this service, or it could be free during promotions of the bank. You should never use online credit score services because they may be fraudsters trying to steal your banking information.
Understanding the concept of a bad credit score
Lenders are more willing to grant a mortgage if the borrower has a credit score of 620 minima. A good credit score is about 850, but it might be difficult to achieve this high number, especially if the borrower is in a younger age bracket and is trying to purchase his/her first home. When a credit score is 600 or below, it is harder to qualify for a mortgage and you may have to look at private mortgage options at this point. But this low credit score does not disqualify you from certain loans such as the Federal Housing Administration loan. This FHA loan approves individuals with lower credit scores of 600-500. A lower credit score may also qualify for other loans such as the VA loan, for veterans.
Maintaining a steady income
When a mortgage application is under consideration by lenders, certain factors are taken into account. Factors such as the ability to pay current expenses like utilities, rent, and credit card payments at the required time. They will also check employment status for at least two years and the steady income you have been receiving.
Reduction of debt
To qualify for a mortgage with bad credit, you have to adjust your debt rate to be significantly lower than the credit you have available. You can reduce your debt by;
- Pay revolving debt
- Consolidate credit card debt
- Adjust credit card payments
Be prepared to pay higher interest on your mortgage
When considering a mortgage application of a person with bad credit, lenders may decide to offer a sub-prime mortgage. These sub-prime mortgages are charged on higher interest rates to enable lenders to compensate for the risk of a higher loan which they are taking on that mortgage. Also, when you credit score is high, the lower the interest on the mortgage due to a lower risk to the lender.
A low credit does not disqualify a person from applying for a mortgage, but the above tips should help the situation.