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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Tips to Get Mortgage with Bad Credit
It may sound a bit surprising but, even with a bad credit score, it is possible for you to get a mortgage.
There are some programs that are specifically tailored for borrowers with bad credit scores.
It is also important to understand that credit scores are not permanent and can be improved by some financial adjustments.
Typically credit scores range from 300 to 850, however, some auto loans and bank credit cards have scoring systems that stretch from 250 to 900.
There is no doubt in the fact that the higher the credit score, the better it is for the borrower.
Though the scores of many borrowers are not among the best ranges. The different credit score ranges look as follows:
- Exceptional: 800-850 – 21%
- Very good: 740-799 – 25%
- Good: 670-739 – 21%
- Fair – 580-669 – 17%
- Very poor: 300-579 – 16%
It is notable that even the borrowers in the band of ‘fair’ and ‘very poor’ can qualify for mortgage financing.
Getting a Mortgage with Bad Credit Score:
A bad credit score can without a doubt cost you when it comes to mortgages and thus it is important to shop around and look for good offers.
1 - Shopping around
Shopping around may help you save thousands of dollars more as different lenders have different terms and some have terms that are simply better than others.
2 - Check for types of loans available for borrowers with bad credit
Look around for mortgage programs that are widely used by low-credit and first-time homebuyers, for example, FHA loans, VA loans, USDA mortgages, Fannie Mae HomeReady mortgages, and Freddie Mac Home Possible loans.
3 - Find a Co-signer
You may want to ask a family member or a friend to be your co-signer if you have a bad credit score.
This can help you boost your application through the co-signer’s credit score, however, if you default, the co-signer will then be responsible for the full repayment of the mortgage.
4 - Look for first-time buyer programs
A first-time homebuyer is someone who has not owned a property in the last 3 years. So, even if you have bought a home in the past, you can still qualify for a first-time homebuyer program.
5 - Find out if you qualify for down payment assistance
Around the nation, there are about 2500+ programs for down payment assistance which you can search by location.
6 - Make a large down payment
Your application has more chances of getting approved if you are willing to make a substantially large down payment.
Finding a mortgage may not be the hardest thing even with a bad credit score. However, getting your application approved might just be that.
Thus, it might be advisable to improve your credit score before actually applying to boost your chances of approval.
This may take a few weeks’ time or even longer which is why you should start ahead of time.
You may improve your credit score using the following steps:
1 - Check your credit score
You can get your credit report for free and review it to look for any potential errors or mistakes.
One in every 5 consumers had at least one error in one of their three credit reports, according to a Federal Trade Commission study, and some of these errors could lower the credit score by 25 points.
If in case, you find a mistake or error you must get it corrected as soon as possible.
2 - Create a budget
It is important to avoid piling of debt to improve your credit score. One of the best ways to do this is having a budget through which you can track your income and expenses.
3 - Pay your bills on time
Paying your bills on time allows you to avoid late fees and other unnecessary costs as well as errors on your credit report.
4 - Saving
Even though you are looking to get a mortgage, it is always smart and advisable to have some savings available for emergencies. You can save by setting aside some cash every week or month and aim to reach a particular amount.
5 - Take advantage of credit-boosting programs
Programs like UltraFICO and Experian Boost programs track the cash movement in your bank account and based on this data your credit score can go up.
About 61% of participants of the Experian Boost program saw their credit scores go up, with an average increase of about 13 points.
Another report suggests that 7 out of 10 consumers with good financial habits had an UltraFico score higher than the traditional FICO score.
Conclusion
When deciding whether or not to approve the loan application of a borrower, lenders check the borrower’s credit scores.
Credit score also helps the lenders decide the rate of interest that they will charge you.
Lenders consider a number of other factors as well, like, Loan-to-value ratio and Debt-to-income ratios, however, credit scores are very important.
Borrowers with the best credit scores usually get the lowest interest rates while borrowers with lower credit scores may find it hard to acquire lower interest rates.
