Despite the common belief that a bad credit history does not allow for a mortgage, the situation is not as bad as you may think. You still can get such a loan even if your credit is rather poor. However, you should take into account huge interest rates you will have to pay and/or much larger deposits a lender may require. So, you need to think twice whether this is the best way for you.
In addition, you can look for special programs developed for poor credit borrowers and their bad credit mortgages. The only thing you will have to do further on is to pay out every month without delays, or you may lose your property.
What Stands Behind a Bad Credit History?
Some people are completely mistaken if they think that since they have a bad credit record, they cannot be approved for further loans. This misbelief is based on the concept that if a person has recently been rejected, they cannot receive loans anymore.
The overall situation is quite different. It depends on many criteria, and keep in mind that different lenders may have opposite approaches to who to consider a reliable borrower. Some of them look at their potential client more optimistically than others.
Of course, there are common factors that are taken into account by most lenders dealing with bad credit mortgages. If you have ever missed your credit payouts or defaulted your previous loans, a lender will feel worried and quite cautious. Even if you have just been applying for loans all the time, the situation does not look quite respectable for the lender.
Another question that emerges here is what to consider a bad credit. It is known that such history depends on the score. It can range from 310 to 860. As for getting an auto loan or credit card from the bank, it can even be from 260 to 910. The interest rate for your next credit will depend much on this score. Most lenders feel uneasy when they see the credit score of 560 and lower. They believe that such a borrower is more likely to default so the lender is afraid of losing costs and interests.
Some Ways to Receive a Mortgage with Poor Credit
Because bad credit does not allow for taking cheap mortgages, look for some other ways to lower the overall cost of it. You can use these tips to opt for the best offer.
Check Various Options
Financial terms can differ for various lenders. So, look around and research many options before making the final decision. Lower rates or fees are what you need to look for.
Research Your Local Offers
Consider special programs available in your area. They can be meant for poor credits or first-time mortgages. Opt for those with 3-3.5 percent or even zero down as offered by, for example, Fannie Mae or VA Financing.
Having a Co-Signer Is a Good Variant
Try to ask a member of your family or trustworthy friend to become your co-signer. Your application for a bad credit mortgage will be regarded as a more reliable one then. However, there is a risk for the co-signer to damage their credit history or lose costs if you are not able to repay or default.
Search for Down Payment Programs
The options here include about 2,550 national programs of such kind. The payments are lowered due to certain grants or special offers.
First-Time Buyer’s Variant Can Be Helpful
Even if you have ever purchased the property before, you can look for the programs meant for first-time buyers. The matter is that most of them require that you shouldn’t buy any housing only during the previous three years.
Lenders Can Also Have Different Approaches
Bank mortgages are not the only option in your case. You can regard non-banking loans, online variants, certain credit unions, brokers, and bankers who deal with such mortgages, or even community programs and private banks.
Provide a Big Down
If you have some savings that can allow you to risk, try to offer a lender higher down payments. Most of them are likely to accept your offer.
Avoid Making Large Expenses or New Credit Cards
Your credit score can go down if you buy something very expensive or if you opt for a new credit card. Wait until your application process is completed.
How Can You Increase Your Chances for Approval
Improving your credit history may take much time. Opt for doing it long before you decide to apply for a mortgage. The period of time for this should be at least 90 days or even more. To do it, you can opt for some steps ahead.
1. Your Credit Report Should Be Checked
Bad errors sometimes occur with credit reports. So, it is worth checking your report regularly. You can do it for free and gain much from it. Statistics says that one in five credit users has once encountered a bad error in their reports.
You need to contact a special credit bureau if you have noticed any mistakes or outdated information.
2. Plan Your Budget Properly
The story goes in the following way here. If you do not have any habits or ideas on how to plan your budget, you will soon face bad debts. Consider all your expenses and possible incomes. If you can make just minor savings, they will turn out quite helpful in a while.
3. Pay Out All Your Financial Obligations Timely and Fully
It goes without saying. Everything that is connected with punctual payments, be that an electricity bill, a small loan, or using a credit card, affects your credit report. So, avoid any delays and you will be able to apply for bad credit mortgages.
4. Personal Savings Are a Must
Never look for a mortgage if you do not have any savings for emergencies. Set accurate aims for such small savings, for example, $200 per week and stick closely to your plan. Do it regularly and consistently to accumulate a certain sum and then you will feel safer for starting your home buying process.
5. Never Close a Credit Card If You Want a Mortgage
You may not be aware of that but if you close your credit card, it lowers your credit score. That’s because most banks believe that if you want to close a card, your financial power is limited and they do not regard you as a reliable client anymore.
6. Credit-Boosting Offers Can Be Quite Helpful
There are special agencies that can track the movement of costs on your banking accounts. The thorough monitoring processes provided by them can show that you are dealing with your costs and credits effectively, so your records are boosted and scores go up.
7. Ask Your Lender for a Rapid Rescore
If you need a mortgage immediately and know that your credit history has recently improved sufficiently but the evidence of it is not officially available yet, you may ask your lender for the so-called rapid rescore. This option is available for lenders only. And, of course, you will have to pay something extra though there are situations when it can help much in lowering the interest rate so you will benefit from it in the end.
Several Words in Conclusion
As you see, you should not give up even if your credit history is rather bad. If you want something to happen, it will happen sooner or later. Just take some steps and find the appropriate options. The only thing to consider while you are looking for the best solution for your situation and receiving a bad credit mortgage is avoiding the lenders with the word ‘guarantee’ in their offers. No lender can guarantee a credit approval because everything should be verified first in accordance with the federal regulations. So if you see that, avoid such a lender and fly away immediately to look for better options.