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If you have an excellent credit rating, it will not be difficult for you to obtain a mortgage. Almost all lenders will be more than happy to serve you. On the other hand, if your credit score is low, you will have a hard time getting a loan to finance your new home.
Your credit reports and credit score are very important for creditors to figure out if you are a good or bad candidate for a home loan. Apart from this, evaluating your creditworthiness allows lenders to get a better idea of how much money they can confidently lend you. In other words, this can ensure that you will make payments on time.
Credit reports and credit scores will help a lender know if you have paid off your previous loans without meeting deadlines. If you’ve had a lot of late payments or delinquencies, you probably have a low rating. The mention of any of these can be a red flag to your potential lenders. Since the lender’s goal is to make a lot of money, they may take you as a risk.
Unfortunately, if you’ve changed your habits, they’ll still look into your past to get an assessment of whether it’s a good idea to do business with you. Similarly, if you have a credit score in the 750 range, the lender will still consider using your debt. If your reports show that you have borrowed often enough, they may find it too risky to give you a loan.
First Time Home Buyers
If you’re a first-time homebuyer, getting a conventional home loan with bad credit can be a little hard to crack. However, it is not an impossible goal to achieve.
Tips for Qualifying for a Bad Credit Mortgage
Below are some tips you can use to improve your chances of qualifying for a credit score. If you follow these tips, your application will likely be approved.
1. Make a bigger down payment
First, if you don’t qualify for a non-traditional loan, you can wait a while and save money for a larger down payment. The problem is that lenders consider borrowers with bad credit scores to be a big risk. In general, lenders are willing to make loans to lenders who can make a down payment of at least 20%. So if you can afford as much as a down payment, you may qualify.
2. Reduce the use of your debt
If you have poor credit and are trying to get a loan, we suggest you lower your overall debt-to-income ratio. This ration allows a lender to calculate the amount of money that he can repay.
3. Use your rental history
On most credit reports, you cannot find information about the user’s rent payments. But if you can, you can show that you’ve made all payments consistently over the last 24 months. Apart from this, some other reporting tools can also do it. They may include RentTracki, Rental Kharma, and Rent Reporters, to name a few.
Before choosing a tool, we suggest you do your homework on the monthly fees and charges. Apart from this, you should find out if your private data can be protected and the steps you should take if you cancel the service.
Please note that these tools provide reports only for the large 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 to explain your situation. In the letter, you must mention the reasons for your negative points on your credit report. And try to convince the lender that the mistakes won’t happen again.
Also, you need to make sure that you are trying to handle the situation that you find yourself in. For example, you can help them realize that you are looking for a job. Before you talk to the lender, make sure you get documents detailing any credit challenges you’ve been facing. Other than this, if you can itemize the derogatory items in your credit history, you may be in a better position to obtain a mortgage.
When talking to the lender, be sure to be specific. You should not be afraid to provide details of your concerns and needs. This will save you a lot of headaches in the future.
Conclusion
Simply put, 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 you follow the tips in this article. Be sure to discuss the matter with your mortgage specialist or mortgage broker.