There is no doubt that the vast majority of people would prefer to own their homes than rent them, but securing the funding necessary to buy their home is difficult when they have poor credit histories. The good news is that getting mortgage loans with bad credit is not out of the question, so long as certain conditions are met.
It would be easy to believe that securing approval with low credit scores on a mortgage of perhaps $ 200,000 is impossible. But it is important to realize that the issue of bad credit is not as significant as is traditionally believed.
Convincing a mortgage provider to grant a mortgage loan is down to meeting a few key factors, and ensuring that these are satisfactory is the secret to getting approved. The good news is there are some simple measures that can help to meet them.
Improve Your Credit Status
A low credit score can be earned in several ways, not just by defaulting on loans. And it is this fact that means lenders are open to granting a mortgage loan with bad credit scores. For example, a score can be low because of a temporary loss of employment causing some repayments to be missed.
These honest borrowers are not as great a risk as their rating might suggest, but taking steps to improve it can help to seal mortgage approval with low credit scores. There are two ways to do this. Firstly, get a copy of your credit report and check if it is accurate. Often they are late on details, so having it reviewed can result in lower scores.
The second way is to clear some debts with a consolidation loan. Even when a loan is used to clear a debt, the score is adjusted to reflect the original debt has been paid off. Once the score is improved, the chance of mortgage loan approval is greater.
Increase the Initial Down Payment
It is a logical move, but admittedly requires quite a bit of pre-planning. Down payments are usually between 5% and 10% of the purchase price. The effect is not just to seal the property deal, but can greatly help in securing a mortgage loan with bad credit.
The logical benefit is that when a down payment is made, the balance of the purchase price is covered by the mortgage. So, if the payment is higher, then the size of the required mortgage is smaller. For example a 20% down payment on a $ 200,000 home leaves a $ 160,000 mortgage needed.
In terms of getting approval with low credit scores, this is hugely beneficial. With the mortgage loan lower, the repayment is lower and the interest to be paid is less. This makes the deal more affordable and therefore approval more likely.
Consider FHA Assistance
Despite the possibility of getting a mortgage loan with bad credit, there is never a guarantee that approval will be granted – even with an excellent credit history. For those who are still unconfident of getting the green light, then seeking FHA assistance may be your best bet of buying a home.
An FHA mortgage loan ensures that 100% financing is provided for the property, which in turn means that no down payment is needed. It also provides a guarantee on 25% of the loan sum, which means the lender can reduce their interest rate.
But while the approval with poor credit scores is more likely, an FHA mortgage is only available to bad credit applicants with score of 580 or more. Any applicants with less than 580 cannot qualify.