The first thing lenders look at when you apply for a mortgage is your credit. If you have a bad credit score, it could be harder to secure financing, but not impossible.
Many lenders offer loans for borrowers with bad credit. Here’s how to get the financing you need.
What do Lenders Consider Bad Credit?
Bad credit is subjective. There isn’t a specific credit score that you can say would stop you from getting a mortgage. However, most lenders draw the line at 620, while some allow lower scores.
If your score is around the 620 range, you’re likely at risk of not getting approved or if you do, you’ll pay higher rates and fees. Knowing how to get a mortgage with bad credit will help you get the best deal.
Steps to Get a Mortgage with Bad Credit
1.Know your credit
Pull your credit report here and/or find out your score by using the free credit scoring services from your credit card company or bank. See where you stand.
If you have a score much lower than 620, you have your work cut out for you. If it’s around 620, you can use traditional lenders but should shop around.
2. Think outside the box Big box banks will turn down your application if you have bad credit. Instead, work with a credit union, mortgage broker, or online lender. Each of these entities has more loan programs available, including niche products the lenders keep on their books, so they call the shots when it comes to underwriting.
3. Have explanations Lenders like explanations. Create a written statement about why your bad credit happened, what you’ve done to fix it, and how you’ll prevent it from happening in the future. If you prove it was a one-time deal or that you’ve picked up the pieces and are moving forward, you could have a higher chance of approval.
4. Shop around
No two lenders offer the same loan programs or have the same guidelines. Shop around to find the best deal including the lowest interest rate and fees given your circumstances.
Tips to Improve your Chances of Approval
To improve your chances of loan approval, use these tips.
- Improve your credit
See what you can do to bring your credit score up. Bring late payments current, pay high debt balances down, and don’t open new credit while you are trying to improve your credit score.
- Save as much money as possible for a down payment
The more money you invest in the home, the less risk the lender takes. If you have bad credit, showing that you’re willing to invest your own money in the home can help your chances of approval.
- Try Experian Boost
Experian Boost is a free program that helps increase your credit score by tracking your payments to services that don’t report to the credit bureaus. They report payments to your utility companies, streaming services, and phone services to help you build a better credit score.
Final Thoughts
Getting a mortgage with bad credit isn’t impossible, especially today. Work on your credit, save money, write a letter of explanation, and shop around to find the best deal. Even if you can’t get the most attractive terms today, you can always refinance when your credit improves so you can secure the attractive terms you desire.