While lenders favor borrowers with a good credit score, you shouldn’t give up if your credit rating is not that stellar. The good news is, even with a bad credit, you can still get a loan and purchase a home. Just be sure to do your homework to find what you can do to increase your chances of scoring a mortgage.
Even if you think that your credit score is bad, you should still check your credit report before meeting with a lender. You can get a free copy of this report from three major credit bureaus: Experian, Equifax, and TransUnion. Credit scores or FICO scores range from 300 to 850. If you have a score of 740 and above, you are likely to get the best loan term and rates.
A score of 700 to 759 is considered good, so if your credit rating is below that range, lenders will have to evaluate if you’re a risky borrower or not. If your score is downright awful, however, you are likely to experience problems when getting and qualifying for a mortgage. American Loans and other mortgage companies in Salt Lake City suggest making these moves:
Check for errors
You may not realize it, but you may not be entirely the culprit for the blemishes in your credit report. Be sure to check your report for errors and contact the organization responsible for that mistake to have it corrected. If there are no errors, just strive to make on-time payments, so you can gradually see an improvement in your score.
Increase your down payment
Some lenders can give you a loan if you have a bad credit but can pay a sizeable down payment. This is because the more initial money you put down, the less risk there is to the lender. If possible, increase your down payment to the usual mark of 20%; aim for 25% or 30%. This will help strengthen your application.
Know your options
Even with a bad credit, there are still loan options that will enable you to purchase a home. Just don’t expect to score the best or the lowest rates. Interest rates, however, are at record lows, so it may not be that bad to take higher rates. You can also consider an FHA loan, which is an option for buyers with poor credit. With this loan, you’ll only need a score of at least 580 and you can make a down payment as little as 3.5%.
Don’t beat yourself up if you have bad credit. You can put off buying first to improve your credit or contact a reliable mortgage company to learn more about the mortgage options that suit your situation.