4 Tips for First Time Home Buyers with Bad Credit
Trying to purchase your first home brings plenty of challenges — even with flawless credit history. While it’s not impossible to get a mortgage with bad credit , it’s not easy. If you have poor credit, you will have to work harder to prove creditworthiness to your lender before you get approved for a home loan. Consider the following advice before you apply for a mortgage loan with less than exemplary credit history.
4 Tips to Get a Mortgage with Bad Credit
1. Know Your Score and Be Honest
Visit annualcreditreport.com, where you can check your credit history for free (once per year) and view your credit score for a small fee. Look at your history and be prepared to have an honest conversation with your lender about its contents.
If you have a history of late payments or collection accounts, be sure you can explain why these oversights occurred and what you are doing to pay off open collection accounts.
2. Prove Your Creditworthiness, In Spite of a Low Score
A low score will make it more difficult for you to obtain approval on a loan request. You can take steps to improve your creditworthiness despite your low credit score. Pay collection accounts in full. Bring all your payments current and continue paying on time. Keeping payments up to date for at least twelve months will demonstrate your ability to repay responsibly.
3. Demonstrate a Strong Ability to Repay
One of the primary requirements lenders have regarding mortgage loan approval is the borrower’s ability to repay the loan. A lender will calculate and evaluate your monthly debt to income ratio (the total payments you make monthly divided by your gross monthly income). Your total monthly payments, including your proposed mortgage payment, should be no greater than about 36% of your monthly income. Having a low debt to income ratio and having worked at the same job for more than two years (the longer the better) will show a strong ability to reliably repay a loan.
4. Reduce the Lender’s Risk
If you have poor credit, you can improve your chances of getting approved for a mortgage loan by saving a substantial down payment, more than the minimum required. If you can save ten percent or more for a down payment on your home loan, you will reduce the lender’s risk and demonstrate financial responsibility.
Get a Mortgage with Bad Credit History
At Mortgage Investors Group, our experienced lenders can help you determine whether you qualify for a mortgage loan, while providing guidance on how you can improve your credit score and creditworthiness. We offer a variety of mortgage loan programs that allow us to consider the approval of borrowers with low credit scores and less than perfect credit history. To learn more and discuss your mortgage loan request with an experienced lender, contact us today.