Before a mortgage lender can give you a mortgage, they first need to determine the likelihood you’ll make on-time payments. To do this, banks and other financial institutions will check your credit report and credit score.
Having bad credit signals to lenders that you’ve struggled to manage debt in the past and may be likely to do the same in the future. Fortunately, while difficult, you can still get a mortgage and accomplish your financial goals with bad credit.
What Does It Mean To Have “Bad” Credit?
What a lender considers “bad” credit can vary. In fact, you can have bad credit on one loan and not on another, even if both loans come from the same lender. Generally speaking, however, bad credit for a mortgage refers to a low credit score.
You have bad credit if your FICO credit score is between the 580- and 669-range. Alternatively, you have a bad VantageScore if your credit score falls under the 500- to 600-range.
Lenders too will have their own interpretation for bad credit. For instance, some lenders may consider you as a borrower who has bad credit if they spot a potential red flag in your credit report, such as a past bankruptcy. This is regardless of what your score actually is.
What Mortgage Can You Get With Bad Credit?
Sadly, bad credit can severely limit your financing choices. And the worse your credit gets, the smaller and smaller that number becomes. Luckily, there are mortgage options that are specifically designed to help borrowers with bad credit. These include:
- FHA Loans
FHA loans are, by far, the most popular mortgages to get for borrowers with bad credit. This is because the minimum credit requirement is only 580. This requirement can go down to 500 if you agree to make a 10% downpayment.
- VA Loans
VA loans are mortgages backed by the U.S. Department of Veterans Affairs (VA). Similar to other government-backed mortgages like the FHA loan, VA loans also have very flexible credit requirements. In fact, the VA sets none.
- USDA Loans
Because of its federal backing, USDA loans are good options for people with bad credit. The U.S. Department of Agriculture doesn’t have a minimum credit requirement. Though, you’ll need at least a score of 620 for most lenders.
Tips To Get A Mortgage With Bad Credit
- Talk to multiple lenders. Talking to multiple lenders allows you to get an idea of what you’ll potentially qualify for with your credit situation. You can then use an estimate from one of the lenders you’ve consulted to leverage better terms from another lender.
- Apply for an ARM instead of a fixed-rate mortgage. An adjustable-rate mortgage (ARM) is a mortgage with a fluctuating interest rate. Getting an ARM instead of a fixed-rate mortgage may convince a lender to give you a loan, considering that you’re agreeing to a potential rise in the interest rate.
- Offer more money as a down payment. A larger down payment means you’ll be borrowing less from your lender. A smaller loan is less of a risk in the eyes of lenders simply because they’ll need to recoup less if you suddenly become unable to make payments.
- Ask a family member to guarantee the loan. A cosigner is another person who agrees to share debt obligations. Having a cosigner may help you get a mortgage with bad credit because lenders can legally collect from the cosigner.
- Fix your credit. Sometimes the best solution is the most obvious one. Improving your credit increases your chances of getting a mortgage. Of course, this takes time. Fortunately, there are ways to speed this process up, such as with credit repair.
The Bottom Line
Getting a mortgage with bad credit can be difficult- but certainly not impossible. There are ways you can still get a mortgage with bad credit. Do note, however, that you probably won’t get the most competitive options.
This is where credit repair comes in. Credit repair can help you get a mortgage by removing negative information from your credit report. Call us at 888-799-7267 to schedule a Free Credit Consultation.
