How to qualify for a mortgage despite a bad credit?

How to qualify for a mortgage despite a bad credit

There is a general consensus over the fact that a good credit score is one of the most important eligibility requirements for qualifying for a mortgage. But what if your credit reports are from being respectable? Here is what you should know and do in such a case.
Guess what! You are in for a shock while applying to a finance company for mortgage to buy a new home. The people at the finance company tell you that your loan application cannot be processed owing to bad credit score. If you didn’t knew it, chances are that if your FICO score is below 620, institutional lenders, finance companies and banks, all will express their inability to provide you a mortgage.

Your credit history is one of the most vital parts of the entire application process. In these economically tough times, gaining a mortgage with bad credit has become even more difficult as lenders will think twice before risking his money on you. However, as they say nothing is impossible and therefore, it is still possible to get a mortgage with bad credit. In fact, an imperfect credit score doesn’t mean that you can’t get a mortgage; it’s just going to come at a higher cost.

What could be causing a bad credit report?

If the lender tells you that he cannot provide you mortgage owing to bad credit, you must find out the reasons behind the rejection. Things that could be causing a bad credit involve:

  • Exceeding limits on credit cards purchases
  • Missing credit card payment deadlines
  • Failure to pay a previous loan
  • If you have filed for bankruptcy within seven years of applying for mortgage, there are high chances of your application getting rejected
  • Lenders also check your tax records and if there are previous anomalies that will definitely give a bad impact on your credit record
  • If you have any legal case related to bad finance or any previous judgment against you can also harm your credit

What to do in such a case?

Having a bad credit score is certainly not the end of the world. However, it may still be possible for lenders to give you a loan, the only problem being that you will be required to pay a higher interest level and more fees. You should be prepared accordingly to accept a mortgage that has an Adjustable Rate Mortgage (ARM), which has interest rate that changes.
Eliminating all the debts, credit card balances and other loans before applying to mortgage can ease the process of qualifying for the mortgage. Even if you have an imperfect credit, showing that you have no current outstanding debt will help your cause. Some other tips to follow in such a scenario are:

Make a higher down payment

Try to pay as much as you can as the upfront payment. This will also assure lender about your serious intent of purchasing the property. This also shows that you have a better chance of paying the mortgage and also know how to save money.

Have your explanations ready (in written)

Sometimes explaining to the lender why you couldn’t pay up your bills at time can help. A genuine reason such as a medical emergency or acute personal crisis for not being able to pay up can make your case for getting qualified for a mortgage stronger. Although it won’t excuse your bad credit but it will provide context for the lender.

Ways in which you can fix the bad credit

According to financial experts, fixing bad credit isn’t actually anything more than common sense. Paying up your credit card minimum balance on time, gradually reducing your total credit, spending less than the maximum credit limit are some of the easiest known methods, which everybody can practice for a good credit score, or better yet for a financially secure and safe future.

Saurabh Tyagi is an expert author, with an experience of over 4 years in writing content for articles and blogs. He loves to write on topics related to career, education, real estate and technology. A gadget freak and social media enthusiast, he also keenly follows the latest trends in digital marketing.

About the Author