If you are looking for a first or second mortgage and you know that your credit score is poor, then there is no need to lower your shoulders because there are several other ways that can lead you to achieve your goal. Unfortunately, your credit history is being considered to decide whether or not to pass your loan.
However, bad credit should not come in the way of your dream of buying a house. In fact, some lenders work specifically with people with bad credit scores. Despite working with bad credit lenders, you have a lot to do to improve your credit situation along with assuring lenders of your ability to meet the loan repayment obligations. Here is how you can get a mortgage with a bad credit score:
What exactly is a bad credit score?
If your credit score is around 620, then most lenders will approve your mortgage. However, the best score that you should strive for has to be around 850 points for getting your file approved. Achieving such a high score is not that easy especially when you are young and looking to buy your first home.
The point is that you should know what a poor credit score means, especially from lenders you are trying to get the mortgage. If the score is below 600, then it may be extremely difficult for you to get your mortgage approved. Approval of the loan file without it means that you will not be able to have the approval. Thus, you can benefit from some loans from a few organizations such as the Federal Housing Administration, known for its approval of loans to people whose credit score varies between 500 and 600 points.
Remember, lenders don’t just rely on the credit score for a mortgage application. In fact, many factors come into play in a significant way, such as your current income, debt, credit history, and your capacity to pay your bills on time.
Have a stable income
While evaluating your mortgage application, lenders will analyze several things, but one in particular, i.e., your ability to deal with day-to-day expenses such as rent, utilities, card payments, and more. Lenders will also check if your income is stable or your employment is safe or not. If the lenders find your income stable and growing for the last two years, then your chances of getting a home mortgage will increase significantly. If your ability to cover all your monthly bills is also on the satisfactory level, then the lenders will overlook your bad credit score. This is especially the case when you are a self-employed person and your credit score is irregular as well.
Reduce your debts
You should know that approximately 35% of your credit score corresponds to your payment history and that is why it remains imperative to be able to reduce or eliminate the debts denting your chances to get the mortgage. Debt in the form of credit card payments and student loans can affect your credit score, so make sure to pay the minimum amount expected each month to come out of the debt. In fact, by paying off accounts that are in the red and reducing your current debts, your credit score will increase steadily, which will boost your chances to qualify for a mortgage while having a bad credit score.