Getting a Mortgage with Bad Credit

• December 20, 2018

If you are seeking a first or second mortgage, and you know that the lenders will not be pleased with the state of your credit, then the road ahead may be bleak, but there are several routes you can take to get to your destination. It is sad that most lenders rely on your credit history to determine whether or not to extend their lending facilities to you.

However, having bad credit should not prevent you from owning a home since there are bad credit lenders who specifically work with persons whose credit cards are in the red and who are experiencing challenging financial circumstances. However, even with bad credit lenders, there will always be some work for you to do to improve your credit, and most importantly, to convince lenders that despite your poor credit score, you will still be able to meet your loan repayment obligations. Here is a brief guide on how you can get a mortgage while having bad credit.

Know what a bad credit score is

In most cases, most mortgage lenders will be comfortable approving your mortgage if you have a credit score of at least 620. However, the best score, and which you should strive for if you want a smooth approval process, should be anywhere north of 850. However, it is not easy to achieve such a score, especially when you are young and you are attempting to buy your first house.

Therefore, it is imperative for you to know what qualifies as a bad credit score, especially from the lenders you are targeting, and if you have a score of below 600, then you may find it a bit difficult to get an approval, but this doesn’t mean that you won’t be approved. With such, you can qualify for certain loans like the Federal Housing Administration which is known to approve loans to people with scores of between 500 and 600.

You should have in mind that it is not only credit scores that lenders look at when qualifying you for a mortgage. Factors such as your credit history, your current income, your current debt, and your ability to pay bills on time will also play a significant role in the qualification process.

Have a steady income

One of the things bad credit loan lenders will look at when you apply for a mortgage, is your ability to meet current expenses such as credit card payments, utilities and rent, amongst others. They will also check to see if you have active employment and a steady income for the past two years, and whether the money coming in is sufficient to meet all your monthly bills. This means that to increase your chances of getting qualified for a mortgage when you have bad credit, you should strive to have a steady income before you make the application. This is especially applicable when you are self-employed, and your credit score is also in tatters.

Reduce your debts

You should be aware that about 35% of your credit score is from your payment history, and this is why it imperative to reduce or eliminate debts that are currently weighing you down, before you think about applying for a mortgage with bad credit. Debts such as overdue credit card payments and student loans have the potential to affect your credit score, and you should always make an effort to pay the expected minimum amount every month to get out of debt. By paying off overdue accounts as well as reducing the amount of current debt, your credit score will rise steadily, and this will enhance your chances of qualifying for a bad credit mortgage.