As you are probably already far too aware, having bad credit can often derail many of your financial aspirations – or at the very least make the process extremely difficult. One common financial goal that many of us have is to own our own home. While some prefer to rent – there is a reason that so many choose homeownership as the more satisfying alternative. However, what do you do when owning a home might not be in the cards after all, due to your poor credit situation? While this predicament of sorts may make obtaining a home loan more of a struggle versus securing one with a squeaky clean credit score, there are options that will still see you qualifying for a mortgage – bad credit and all. I have certainly been in this situation where I wondered if I was going to be able to own a home, despite having a lower credit score – and so have many of our family friends – so this blog posting certainly hits ‘home’ for us and I wanted to find out all I could about qualifying for a mortgage with bad credit. So here goes . . .
1) Your Credit Report
Even if you are already pretty tuned into what your credit score and credit history will say about your current situation – it is still important to examine your report for any discrepancies and errors that are impacting your score even if in a minor way. It may actually turn out that a tiny error or a series of tiny errors are derailing your rating even further. You will want to make sure these are all in order as you look for a mortgage lender.
2) Pay Down Debt
Another way to work towards improving your credit situation prior to as well as during the mortgage search, is to pay off as much of your current debts as you can. Even if you can only pay off a little here and there, this can also make a fairly significant difference to your credit score. Lower your debt to income ratio and pay off some of that credit card and loan accumulation and you are more likely to find a more promising mortgage.
3) Higher Interest
Being realistic about the amount of interest you may be expected to pay in order to obtain your loan is a good way to go into this process. Having poor credit may also mean that you will sign up for a Adjustable Rate Mortgage (ARM), where the rate changes – and this can have a good outcome if the interest goes down over time. Depending on the mortgage parameters, you may be able to renegotiate your mortgage as your credit improves and then end up with a better rate down the road -opening up some more doors in terms of mortgage flexibility.
4) Steady Income
In order to qualify for a mortgage under a cloud of bad credit, you will also be expected to show proof that you have a steady income coming in. This is important so that the mortgage lender knows you will be able to meet the demands of the loan payments and cover these expenses for the long term. Again making you a more appealing borrower.
5) Down Payment
With everything you know about paying higher interest rates, in combination with a high volume of ongoing debt, the mortgage you are about to take on will most certainly also impact your overall financial situation. However, if you are prepared to make a larger down payment, you will have more breathing room in terms of lowering the overall size of the loan balance. Additionally, this down payment will also help to combat the amount of interest you will pay off the loan, if you can decrease the loan size from the get-go. One other benefit of making a higher initial payment is that you are in fact showing the lender that you are able to save money and this once again makes you a more reliable borrower.
6) Consult a Mortgage Broker
With narrower mortgage options as a result of poor credit, you may also consider contacting a mortgage broker for further assistance. In many cases, they can help to lower your payments, as well as seek out mortgages that can even offer lower interest rates. One major advantage of going through a mortgage broker, is that they can rely on a network of specific lenders who they know can set clients up with better mortgage terms. They can save you the hassle of being rejected over and over by loan providers who may not be willing to offer financing to individuals with bad credit. This is where mortgage brokers can improve your chances of qualifying for a mortgage, often with access to more favourable terms. If you have previously been turned down for a mortgage, don’t fret – you still have options. There are also actions you can take to improve your situation and decreasing your debt load where ever possible, is an effective method for improving your credit score and your future loan opportunities. As these positive changes are reflected in your credit history, mortgage providers will look more kindly on your home loan application and this can increase your loan options fundamentally.