It used to be that if you had bad credit, you were doomed. You could
forget about ever getting a home loan. Today, however, it has become
much easier for people with bad credit to get a mortgage. There are
even lenders who specialize in bad credit mortgages. If you do have
bad credit, there are a few things you can do to improve your chances
of qualifying for a mortgage.
The first thing you can do is to try to improve your credit score. A few points could make all the difference. Get a copy of your credit report and review what is in it. You may find that your credit report contains some erroneous items. If that is the case, you can easily contact the credit bureaus and dispute these items. Be sure to start making all of your payments on time. Late or unpaid bills will have a negative effect on your credit score. The easiest thing you can do is to keep the number of inquiries on your credit to a minimum. Each time you apply for a credit card or a loan, your credit report is checked, and each inquiry decreases your credit score. By limiting the number of inquiries, your credit score will begin to improve.
The second thing you can do is to save your money for a down payment. Even if you can save just 3% of the cost of a property for a down payment, you will increase tremendously your chances of qualifying for a loan. This doesn’t mean that you cannot qualify for a no-down-payment loan; it simply makes it easier for you to qualify. Another advantage of making a down payment is that your interest rate will probably be lower as well.
Be sure to shop around for a mortgage lender. If the first lender you talk to can’t help you, then pick up the phone and call someone else. Just because one lender can’t finance your loan, that doesn’t mean another won’t. Different mortgage brokers deal with different financial institutions and have different relationships with them. Nowadays, there are more flexible lenders who are willing to finance loans for people with bad credit. It is simply a matter of finding the right lender who fit your needs. Just remember that each lender you to whom you apply will inquire into your credit, so you may want to do some research first and find lenders who will work with people with bad credit. That will help ensure that you don’t have too many credit inquiries.
You can also try to find a good real estate deal. If you can find a property that has some equity in it when you purchase it, you may have an easier time getting financing on that property. To the lender, that may be almost as good as your having a down payment on the property. Some lenders will even consider the property’s loan-to-value ratio when considering a loan.
Finally you can try being creative with your financing. You could ask the seller if they would be willing to carry back a second mortgage on the home. You would set up a contract with the seller that you will pay them monthly payments including interest as a second mortgage. You can also enter into the contract that you will pay the loan off in a certain number of years. This way you have time to refinance your mortgage later.
No matter what your credit score there are options out there. The idea is not to give up and keep searching and you will find a way to qualify for a mortgage.