How to Get a Mortgage if your Credit Score is Low
How to Get a Mortgage with Less-Than-Stellar Credit Score
Is your credit score not exactly how you want it to be, but you want to finance a home? This article is for you!
The first thing lenders usually look at when you apply for a mortgage is your credit. If you have a bad credit score, it could be harder to secure financing, but not impossible.
Many lenders offer loans for borrowers with bad credit. Here’s how to get the financing you need.
What do Lenders Consider Bad Credit?
Bad credit is subjective. There isn’t a specific credit score that you can say would stop you from getting a mortgage. However, most lenders draw the line at 620, while some allow lower scores.
RELATED: “How do I prepare to buy a house?”
If your score is around the 620 range, you’re likely at risk of not getting approved or if you do, you’ll pay higher rates and fees. Knowing how to get a mortgage with bad credit will help you get the best deal.
Steps to Getting a Mortgage with a Lower Credit Score
Know your credit
The federal government entitles you to one free credit report per year. You can take advantage of that to monitor where you stand. You can also utilize the free credit scoring services from your credit card company or bank. It’s worth looking into.
If you have a score much lower than 620, you can utilize credit repair companies or you can take steps that you already know will improve your credit, such as making payments on time, keeping credit card balances at less than 30% capacity, etc.
Think outside the box - Big box banks will turn down your application if you have bad credit. Instead, work with a credit union, mortgage broker (like me), or online lender. Each of these entities has more loan programs available, including niche products the lenders keep on their books, so they call the shots when it comes to underwriting.
Have explanations - Lenders like explanations. Create a written statement about why your bad credit happened, what you’ve done to fix it, and how you’ll prevent it from happening in the future. If you prove it was a one-time deal or that you’ve picked up the pieces and are moving forward, you could have a higher chance of approval.
Shop around - No two lenders offer the same loan programs or have the same guidelines. Shop around to find the best deal including the lowest interest rate and fees given your circumstances.
Tips to Improve your Chances of Approval
To improve your chances of loan approval, use these tips.
Improve your credit
See what you can do to bring your credit score up. Bring late payments current, pay high debt balances down, and don’t open new credit while you are trying to improve your credit score.
Save as much money as possible for a down payment
The more money you invest in the home, the less risk the lender takes. If you have bad credit, showing that you’re willing to invest your own money in the home can help your chances of approval.
Final Thoughts
Getting a mortgage with bad credit isn’t impossible, especially today. Work on your credit, save money, write a letter of explanation, and shop around to find the best deal. Even if you can’t get the most attractive terms today, you can always refinance when your credit improves so you can secure the attractive terms you desire.
