Poor Credit Loans (And How To Obtain Them)
Mortgage options for someone with bad credit may be limiting, but some factors offset a poor credit score. There are mortgage home loans that work with people with low credit, and we'll explore ways to obtain them.
Start By Knowing Your Credit Score.
Knowing what your actual credit score is the first step to obtaining a mortgage. Your credit score will give you a starting point for the types of loans you may qualify for, and help you know the limits you may face when it comes to receiving a mortgage. Conventional loan options require at least a 10% down payment and often need a credit score above 700. If your credit score is lower than that, don't give up hope. It merely means you will have to use alternative options that are available to you.
Beef Up Your Lending Factors
When you have bad credit, try to offset that low score by showing off the financial areas of your life that you are getting right. Bad credit may become offset when there is enough money brought to the table. A modest down payment may open up more loan options for you that you would have if you didn't have cash or good credit. Borrowers tend to appear less risky to lender's when there is a substantial down payment amount available, regardless of their credit score.
Also, showing financial responsibility, steady income flow, and built up emergency savings can also be a good idea to make you an attractive borrower to lenders. If you have a plan to rebuild your credit, tell your lender what you have already implemented and what you plan on doing to show your financial responsibility.
Pay Off Any High Debt
A high debt-to-income (DTI) ratio is a huge warning issue for lenders. They look at it like a blazing siren warning them to avoid lending to you, and some lenders find a borrower's DTI more crucial than even their FICO score. Many agree that the number one reason lenders deny borrowers a mortgage is because the client already has an impossibly high amount of debt.
Calculate your DTI and figure out if you are above or below the level it needs to be. Lowering your DTI not only helps rebuild your credit and make you more attractive to lenders but will also free up finances to cover any new mortgage housing expenses once you do take out a mortgage loan for a home.
Research Home Loan Options That Are Available To You
Don't just choose the first lender you hear about, or go for the first home loan type that they offer you. Research what types of loans are available to you now that you know your credit score. Conventional loans may not be an option for someone with poor credit, but there may be some other loans that you can get.
FHA home loans are a good option for people with scores of at least 580 and only require a down payment of at least 3.5%. VA home loans are available for qualified Veterans, that while they do have a higher credit score requirement do not make their borrowers make a down payment or pay Private Mortgage Insurance (PMI). Other options outside of FHA and VA loans include rural USDA home loans, private loans, and more. Each type of mortgage loan will have specific requirements and guidelines, so researching it ahead of time will help pair you up with the right lender and have a better chance of succeeding with your mortgage application.