David Andrew • 7/25/14
When you apply for a mortgage loan, lenders will closely research your credit score for their approval decision. If your credit score isn’t where it needs to be, this can make it very difficult to get a loan .
Fortunately, there are a few things you can do to improve your chances of getting a mortgage with bad credit.
1. Review your credit score.
Before applying for a loan, you should figure out exactly where you currently stand. Contact one of the major credit bureaus and ask for a copy of your credit report.
This should list your current score as well as the factors contributing to your score, like your credit limit, your current outstanding debts and whether you missed any payments on other loans.
Check your credit report for any mistakes. Look for items like a repaid debt that is still on your report or reports of missed payments you actually made on time.
If there is a mistake, contact the rating bureau and ask them to remove the error. This would immediately bump up your score and improve your chances of getting a mortgage.
2. Pay down your credit cards.
Part of your credit score is based on the amount of outstanding credit card debt you have. If you are near your credit limits, it will drag down your score.
By paying down these balances, your score should improve in a month or two, which will make it easier to get a mortgage.
"By paying down these balances, it will
make it easier to get a mortgage."
3. Apply for an FHA loan
The government can also help you get a mortgage through an FHA Loan. With this program, the government guarantees part of your loan.
As a result, you can qualify for a mortgage
with a score significantly lower than what is needed for a regular loan.
With this program, you can also make a smaller down payment, as low as 3.5 percent of the cost of your house.
4. Save up for a down payment.
It’s easier to qualify for a loan if you can make a sizable down payment upfront. Lenders are more likely to give money for a couple reasons.
First, since you’re borrowing less money, they’re taking on less of a risk with your loan. In addition, saving up for a down payment takes financial discipline.
This shows you are more responsible with money than your credit score may indicate and is something lenders consider.
5. Get help from a cosigner.
When your score isn’t strong enough to qualify for a mortgage, a close friend or family member can help.
When someone else cosigns your loan, he or she is guaranteeing your payments. As a result, lenders will consider their credit score as well for your application.
6. Keep working on your credit score.
If all else fails and you can’t get a mortgage loan now, get to work on your credit score so you can qualify later. Make sure to make all your payments on time to avoid any more hits on your score.
Try to pay down your debts as much as possible as this will also help. In a year, check to see how your score has improved and hopefully it will be high enough for a mortgage loan.
Getting a mortgage with bad credit isn’t easy, but following these steps will improve your chances.
Once you get a loan, be sure to make all your mortgage payments on time to boost your credit score so you won’t have to go through all this work again.
Photo source: archibaldrelocation.com.