If you have a great credit rating, you will not find it difficult to get a mortgage. Almost every lender will be more than happy to serve you. On the other hand, if your credit rating is low, you will have a hard time getting a loan to finance your new home.
Your credit reports and credit rating are very important for creditors to know if you are a good or bad candidate for a mortgage. Apart from this, assessing your creditworthiness allows lenders to get a better idea of how much money they can loan you with confidence. In other words, this can ensure that you will make payments on time.
Credit reports and scores will help the lender see if you paid off your previous loans without any missed deadlines. If you have a lot of late payments, or are in arrears, your rating is likely to be poor. Mentioning any of these can be a red flag to potential lenders. Since the lender’s goal is to make a lot of money, they may take you as a risk.
Unfortunately, if you change your habits, they will still look back at you to get an assessment of whether it was a good idea to engage with you. Likewise, if you have a credit score in the range of 750, the lender will still consider your debt use. If your reports show that you get loans often, you may find it a bit risky to be granted a loan.
First time home buyers
If you are a first time home buyer, getting a traditional home loan with a poor credit rating can be a little tricky. However, it is not an impossible goal to achieve.
Tips for qualifying for a mortgage with bad credit
Here are some tips that you can use to improve your chances of qualifying for a credit rating. If you follow these tips, your application will likely be approved.
1. Make a larger down payment
First, if you don’t qualify for an unconventional loan, you can wait a while and save up for a larger down payment. The problem is that lenders consider borrowers with bad credit score to be very risky. Generally, lenders are willing to give loans to lenders who can make at least 20% down payment. So, if you can make that much as a down payment, you will be able to qualify.
2. Reduce your debt use
If you have a poor credit rating and you are trying to get a loan, we suggest that you reduce your overall debt-to-income share. This quota lets the lender know how much money you can afford.
3. Use your rental history
In most credit reports, you can’t find information about a user’s rent payments. But if you can, you can prove that you’ve made all payments on a consistent basis over the past 24 months. Apart from this, some other reporting tools can also. They may include RentTracki, Rental Kharma, and Rent Reporters, to name a few.
Before you look for a tool, we suggest that you do your homework to learn about the monthly fees and charges. Apart from this, you should know whether your private data can be protected and the steps you need to take if you cancel the service.
Keep in mind that these tools only report to the major credit bureaus. However, you can also find some that can send their reports to all of them.
4. Explain your circumstances and credit rating
Another good way is to write a letter explaining your position. In the letter, you should state the reasons for your negative score on your credit report. And you try to convince the lender that mistakes won’t happen again.
Also, you must make sure that you are trying to deal with the situation you are in. For example, you can help them realize that you are looking for a job. Before you talk to the lender, make sure you have documents outlining the credit challenges you’ve encountered. Apart from this, if you can clear up the degrading elements of your credit history, you may be in a better position to get a mortgage.
When heading to the lender make sure you are specific. You should not be afraid to provide details of your concerns and needs. This will save you a lot of headaches down the road.
Long story short, if you have a bad credit score but are still looking for a lender to give you a loan for your first home, we suggest that you follow the tips in this article. Also, be sure to discuss it with your mortgage professional or mortgage broker.