Can I get mortgage loan with bad credit?
Buying a house is a very important and big decision in one’s life and it is quite different from buying a car or renting an apartment. A customer wishing to get mortgage loan should evaluate his current situation and educate himself on the best ways to get approval of mortgage loans.
Factors to consider before applying for mortgage loan are:
Credit score checkup
First thing is to check your credit score to remove any errors from credit report which can harm your possibility of getting mortgage loan. Besides you will get to know the current position of your credit score. In case of low credit, you may need a co-signer or need to improve your credit.
Calculate monthly income and debts
You have to make record of your monthly income and debts payments and provide them to lenders. The lenders may count the average of last two year’s income to decide how much you can pay for mortgage payment.
It is better to pay off other loans before taking new loan.
Saving for down payment
You need to figure out how much you can save for down payment for your home. Expect your lender to demand 10 to 20 percent down payment and you must be ready for it. Do not tempt into buying more expensive house than you can afford.
Make your mortgage budget
Before applying, review your mortgage budget and how much you can afford to pay back. It is advised that your housing repayment including all fee and charges, should not exceed more than 35 percent of your income.
Speaking of credit, people with bad or not so good credit may find it difficult but not impossible to get mortgage loan. Mortgage lenders have poor credit financing offers for borrowers. Credit scores do not remain low and with few financial adjustments, people become able to get mortgage loan. After working on credit, it is possible to improve it to better credit category and get less interest rate.
Credit score ranges from 300 from bottom to 850 from top. You need high credit score to get better rates, but a survey by FICO tells us that most borrowers are not in highest credit range. A bad credit score can affect your mortgage loan badly as mortgage lender can charge you with high interest and you will have to pay a lot of money which will be difficult for you.
Large down payment reduces the risk for the lender and helps you get mortgage loan with bad credit. Keep some cash reserves on hand for unexpected repairs in home.
Another tip is to pay off mortgage loan regularly and consistently on time every month.
Avoid getting new loans. Mortgage lenders evaluate your debt-to-income ratio before approving your loan and if you have high debt ratio, lender can reject your loan application or offer a lower mortgage. Try to pay off your consumer loan completely before looking for mortgage loan.
If you are not qualified for mortgage loan due to bad credit, do not feel bad, instead work on improving your credit and finances by careful planning to achieve your financial goals.