Before you even start applying for a mortgage, it’s important to check your credit report and score. This will give you an idea of where you stand and what kinds of loans you may qualify for.
Not all lenders have the same standards for approving loans, so it’s important to shop around and compare offers. You may be able to find a lender who is willing to work with you despite your bad credit.
Be prepared to pay a higher interest rate
Because you’re considered a high-risk borrower, you can expect to pay a higher interest rate on your loan. This will increase your monthly payments, so be sure to factor that in when budgeting for your new home.
Offer a larger down payment
A larger down payment will show lenders that you’re serious about buying a home and can afford to do so. This may help offset the higher interest rate and increase your chances of getting approved for a loan.
Lower your debt to income ratio
Your debt to income ratio is the amount of debt you have compared to your income. Lenders use this number to determine how much of a risk you are. To lower your ratio, you can either increase your income or pay off some of your debts. Both of these options may help improve your chances of getting approved for a mortgage with bad credit.
Use a mortgage broker if you have bad credit
If you’re having trouble finding a lender who will work with you, a mortgage broker may be able to help. They can connect you with lenders who are willing to give loans to people with bad credit. While it may be more difficult to get approved for a mortgage if you have bad credit, there are still options available to you. With a mortgage broker, they can do all the heavy lifting for you if a traditional bank wont approve you.
If you know someone with good credit, you may be able to have them co-sign for your loan. This means they will be responsible for making the payments if you can’t. While this option can help you get approved, it’s important to only consider it if you’re confident you can make the payments on time. Otherwise, you could damage your relationship with the co-signer and your credit score.
Avoid big changes to your finances before apply for a mortgage
You may be tempted to open new lines of credit or make other changes to your finances before applying for a mortgage. However, this can actually hurt your chances of getting approved. Lenders like to see stability, so avoid making any major changes to your finances in the months leading up to your mortgage application.
With some preparation and perseverance, it is possible to get a mortgage with bad credit. By following these tips, you can give yourself the best chance of loan approval. Contact us today for all your mortgage needs.