We all want to have our own house. That’s the American dream. To achieve that you need a loan. Unless you can pay for the property in full upfront, you will need to get yourself a mortgage.
Your credit score is one of the most essential determining factors if you qualify for a home financing or not. The stronger your credit score, the bigger chance for you to get a good loan.
But what if you have bad credit? Is this going to be the end of your American dream?
When is credit bad?
Your credit score is derived and calculated based on your credit report information. When debts are handled better, your score will be higher. Mortgage lenders use both your credit score and credit report to determine the borrower’s level of risk.
850 is considered to be the perfect credit score. However, very few reach such credit score. If we were to put it in a range, 740 and up is the best range, especially for mortgages. A score of 660 will get you a loan with a good interest rate. As the score goes higher, the rates become more and more attractive. While some lenders still offer loans to borrowers with a credit score of at least 620, going lower than that is already considered bad credit.
Most lenders may refuse to make someone a home financing program if they have bad credit. Some mortgage lenders may offer you a loan but to compensate for the high risk, you may get high-interest rates or may be asked for a large down.
Buying a House When You have Bad Credit
Here are some tips to help you get the lender to offer a better mortgage deal while you work on boosting your credit score:
Talk to a Lender About It
Be able to talk about your credit issues with the lender. And while having a conversation over the phone may work, it is best that you discuss this upfront.
The blemishes on your credit may be due to some unfortunate event or may be caused by the lack of sufficient history. You can tell the lender all you honest reasons for the slow credit score. Discussing this with your lender face to face will allow him/her to to read your emotions. They can tell whether you’re just making it up or are genuine with everything you’ve told them.
Be sure to have an honest discussion about the issue and they may be able to consider these reasons when offering you a mortgage or give you alternative ways to get approved.
Pay In Full, On-Time Each Month
This is the easiest way to boost your credit score.
Being responsible in dealing with your debt will help improve your credit. If you want to go the extra mile and you have some cash to spare, you can pay a little more than the due amount. But if you can’t, staying consistent on your monthly payment will already have a huge positive impact on your credit report and score.
Show Strong Employment History
Lenders will want to see that you can make mortgage payments consistently. One way of telling is if you have a long and stable employment history. They also want to make sure that you can continue earning the same amount of money in the future. Again, the lesser the borrower’s risk, the better the offer. If you have a stable income source, lender’s will consider offering you a better loan.
You have to have at least two years of employment in the same field. If you have been working with the same employer in that span of time, so much the better.
Save up for a Larger Down Payment
Come up with a larger down payment. A down payment that’s 20 percent of the home price is the ideal for people with good credit scores. For someone who has bad credit. The down payment has to be bigger than that.
A larger down payment makes up for the risk for having a low credit score. This shows the lender that even with the credit issue, you’ll be able to handle the monthly mortgage payments.
Fix Entry Errors on Your Report
You may not realize this, but ridding your credit report with errors will have a great impact on your score. File a dispute to your credit reporting agencies. These errors on your file are very detrimental to your score, so you have to have them removed as soon as you detect one. Make sure you know the agency’s instructions in filing disputes as each has its own process.