Buying your own home is a big part of the American dream. If you’ve had credit problems in the past, you may wonder how to qualify for a mortgage with bad credit. Having good credit can help you to get approved for a mortgage more easily, but it’s not impossible to get a mortgage with bad credit.
Credit Score Needed to Get a Mortgage
Different lenders have different minimum credit score requirements. A credit score over 670 may make it easier to be approved for a mortgage, but your credit score is not the only thing that lenders look at. Other factors they’ll consider include your down payment, your income, and your overall debt.
Borrowers with low credit scores may be approved for some loan programs. FHA loans are backed by the Federal Housing Administration and have less stringent requirements for qualification. You may be approved for an FHA mortgage with a credit score as low as 500.
Getting a Mortgage with Bad Credit
There are lenders that are willing to finance a mortgage for a consumer with bad credit, but the lower your credit score, the more likely your mortgage will be categorized as subprime. In this category, your interest rate is likely to be high because you’re considered a risky borrower. If your credit is less than perfect, shop around and compare your options through banks, credit unions, and mortgage companies.
If you have bad credit, offering a large down payment may improve the chance of approval since financing a lower amount is less risky to lenders. Paying down your debt improves your debt-to-income ratio and leaves you with more money to put toward your mortgage. If you’re able to get someone to co-sign your mortgage, that can also help you to get approved, so long as the co-signer has a good credit history.
Preparing to Apply
When you’re thinking about trying to get a mortgage, you may want to spend some time improving your financial situation and your credit before you apply. Catch up on any past due bills and pay down outstanding debt as much as you can.
If you’ve recently had a bankruptcy or foreclosure, you may want to wait a while before applying for a mortgage. The more time that passes, the fewer negative items impact your credit. Continue to save for a down payment and for a cushion in the bank to pay for unexpected home emergencies or repairs that may happen once you own your own home.
Know What’s on Your Credit Report
Before applying for a mortgage, find out what’s on your credit report and make sure the information on it is correct. As many as 2 out of every 3 people find an error on their credit report, such as a timely payment showing late, inaccurate balances, or accounts showing as open that have been closed.
Dovly is an automated credit repair engine that can help you dispute inaccurate information on your credit report. Try it risk-free with our free membership tier. Contact Dovly today.