3 Tips for How to Get a Mortgage With Bad Credit
Maybe you’ve graduated from college. Maybe you’ve gotten married and want to start a family. Or, you’re just ready to begin a life in a place you can call your own.
There’s also a chance you’ve messed up in the past–missed credit card payments, had accounts go into collections, or declared bankruptcy.
No matter your situation, it is still possible to purchase a home! We’re going to tell you how to get a mortgage with bad credit!
Keep reading for more information and advice!
Save, Save, Save!
There are a couple reasons to save money for the purchase of a home. The first reason to save is your down payment.
With an FHA home loan, your credit score can be as low as 580, and you’re only expected to pay a 3.5% down payment. If your score is lower than this, you will have to pay 10% as your down payment.
If your credit is mediocre, you may be able to qualify for a conventional home loan, but these do typically require more than 3.5% down.
The other reason to save money when you’re applying for a mortgage with bad credit is to have cash reserves on hand. Having access to cash reserves will make a lender more comfortable with the loan because it shows you can easily absorb the unexpected.
Lower Your Debt-to-Income Ratio
Debt-to-income ratio is a determining factor in many loans. Typically people with higher debt and lower income have less ability to pay outstanding loans.
This ratio shows your lender that you are not taking on debt you can’t afford putting them at risk to lose money. Having a great debt-to-income ratio also shows financial responsibility, or the ability to live within your means.
Debt-to-income ratios are determined by totaling your monthly debt payments, then dividing that number by your monthly income. 43% is about the highest number acceptable for qualified mortgages.
Your credit score might be low, but it’s very possible that you paid your rent on time each month. This can be a great benefit to you when applying for your mortgage.
Unfortunately, your rental payments probably haven’t been reported to your FICO credit file. There are ways around this though!
Alternative credit reporting sites can keep track of your rental payments, gym membership payments, and anything else you pay on a monthly basis. If you have poor credit, opting to use one of these sites may help you exponentially.
How to get a Mortgage With Bad Credit
Raising your credit score takes time and effort. It also takes financial responsibility. Once you’ve seen your score begin to rise, it can be smart to go from renting a home to buying one–if done responsibly.
Following these tips on how to get a mortgage with bad credit will show your lender that you’re on the right path and will work to repay the loan.
If you’re interested in more information about FHA loans or obtaining mortgages with poor credit, check out our blog! You can also use our free mortgage calculator to learn how to save money on your home loan.