The first thing mortgage lenders do before giving a loan is check the applicant’s credit score. Your chances of getting a home loan can be hampered by a poor credit score. The situation can worsen in a struggling economy because of underlying financial risks and history of foreclosure. Even with bad credit and unfavorable economic climate, you can still find plenty of bad credit loans. However, you will be forced to make concessions in areas like interest rate cap and costs of the home. A reputable mortgage broker or expert can help you better navigate the process. According to Dividend.com, the following ways will help you get a mortgage even with bad credit score:
1. Consider rate adjustment
The difference between getting approval for bad credit loans and denial may entirely rest on agreeing to an adjustable rate mortgage. This means paying for a loan whose fixed loan interest is much higher compared to the usual rates listed by lending institutions. As much as possible, be careful to choose a loan whose mortgage rate you can afford. The loan repayment duration should also be feasible and not run for too long. If you are unsure about the intricacies of adjustment rate mortgage speak to an unbiased mortgage expert to get the details and required qualifications.
2. Make a high down payment
The other strategy to beat the system is making a huge down payment on your mortgage. Making a resounding down payment can go a long way to save you the pain of applying for expensive private mortgage insurance and present you as a more credible borrower. Private mortgage insurance is a requirement for all borrowers making less than 20% down payment on home purchases.
3. Seek for alternative or non-traditional lenders
The dynamics of the economy, more so the rabble rousing subprime meltdown, drove many low credit lenders out of business. This has made it difficult to find a lender who caters low credit borrowers, but all is not lost. You can search for reputable lenders by checking their licensure and standing on sites like the Better Business Bureau and local chamber of commerce.
4. Get an FHA approval
Unlike the conventional mortgage loan providers that have a high bar of loan approval, the FHA or the Federal Housing Administration can be a great source of cheap loans for individuals with bad credit. It is important to note that the institution is not a direct loan provider but acts as a cushion for the lenders who agree to give bad credit loans. If the borrower defaults on payment, the FHA guarantees the repayment. The whole idea makes it less risky to lend money to low credit customers. Note that an approval from FHA doesn’t necessarily mandate the lender to approve a mortgage because other considerations may take precedence.
5. Look for a co-signer
Having a bad credit score doesn’t stop you from finding a cosigner to help you apply for a loan. In most cases, the cosigner can be a close family member, friend or co-worker. The strategy is always a win-win situation because while seeking a co-signer, you can begin to rebuild or repair your scores to make yourself more creditworthy. The risk of defaulting on payments means the co-signer may suffer the consequences of bad credit rating and other undesirable effects such as placing a damper on your long-term aspirations to own a home.
6. Boost your credit score
A good credit will definitely boost your chances of getting a home loan. In spite of the lengthy time frames, you can greatly reduce the red tape by working your way up. To begin, you need to order your current credit scores from any of the 3 national credit bureaus and perform a thorough analysis to establish the accuracy of the reports. If you find errors, make sure these are reported to the bureaus and corrected as soon as possible to earn a credit boost. Once this is done, start making down payment on the consolidated debt and ensure the debts on your current credit cards are all made on time.
The whole process of bringing your credit score to good standing takes serious work and sacrifices. According to Trulia, the credit score is calculated based on pertinent information appearing on your credit report. The key items that impact the scores are the payment history and debt to credit utilization. The lesser items in the list include the length of the credit history, credit mix and new credit. A perfect score is currently capped at 850, but only 0.5% of consumers enjoy this level of rating. On the overall, a score of 740 and above is considered safe for obtaining a mortgage while at the end of the spectrum, a score of 580 and below is considered poor credit.