Bad credit and getting a mortgage

By Melissa Wirkus

Having a good credit score and getting approved for a mortgage are two things that undoubtedly go hand-in-hand. Without one you can’t have the other.

But many people that have bad credit think they cannot get approved for a mortgage, but this is not true they just have to do things a little bit differently.

Shopping for a mortgage with bad credit can be difficult, but definitely not impossible; it just takes a little extra work.

An October 6, 2006 article from Quicken Loans, “How to shop for a loan with bad credit,” looks at taking out a mortgage with bad credit.

“Just because you have bad credit (or think you do) doesn't mean you'll necessarily get turned down for a loan. Having a low credit score doesn't mean you're an undesired customer. In fact, many lenders do want your business, provided your credit isn't rock-bottom.”

The first thing a person with bad credit should do when looking to take out a mortgage is to check on their credit score and report and fix any mistakes that may appear.

“You should already be checking your credit report for inaccuracies since a good majority of credit reports contain errors. But it's also important to find out what your credit score is. The higher it is, the better interest rate you can get and knowing your credit score can give you a better idea of where you may stand.”

The lower your credit score, the higher the interest rate you will have on your mortgage, so you should always be actively taking steps to improve your credit score, and there are many ways to do this.

“Pay your bills on time--this is the most important thing you can do to improve your score and the one that will impact your score the most. Pay off debt rather than shifting it from one card to another. Don't open and close multiple credit accounts in a short period of time--lenders generally view this as irresponsible use of credit.”

Once you have checked your report and score, and maybe made at least a small attempt to improve your score (depending on your time frame), you can start shopping for a lender.

“Generally speaking, the lower your score, the higher risk you are to a lender. If you have bad credit, it may be even more important to shop around because your rate will be a little higher than for someone with better credit. Many lenders will accept a credit score as low as 620, though some have been known to accept scores as low as 580.”

Shop around. Look for someone who is not only going to not charge you high interest rates, but look for low or no “loan points.”

“Also, try not to take too long to shop around for a mortgage. Each lender you contact must pull your credit to find out what loan you qualify (or don't qualify) for. Any number of credit pulls done in a 30-day period count as one inquiry and won't necessarily impact your credit score. However, say you apply with one lender one month, then another the next month, then a third the month after that, then they count as multiple inquiries and will begin to negatively affect your credit score.”

Eventually you will find a lender who molds to your situation; you just may need to deploy a bit more patience.

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