Home Loan Options Available for Those with Bad Credit
Owning a home is a part of the American Dream. There are issues for some individuals that potentially prevent them from achieving their dream of owning a home.
One reason that sometimes prevents an individual from applying for a home loan is their bad credit. Another reason is that lenders sometimes deny a home loan to those with lower FICO scores.
There are options for those with bad credit that wish to buy a home. Learn about your options for getting a home loan approved, even if you have bad credit.
How bad credit affects your home ownership dream
Lenders typically offer home loans to borrowers with good credit. When you do not have good credit, that fact alone does not necessarily prevent you from buying a home.
If you look for home loans for bad credit options, there is a possibility that you still receive a loan. Several factors determine whether a lender extends the approval of a home loan to borrowers with lower FICO scores.
A lender does not have to extend a loan to an individual seeking home loan with bad credit options. If a lender approves a home loan offer to you, and you have a lower credit score, you likely pay for this kindness and risk.
You likely pay higher interest rates than a borrower with a better credit rating. The lender accepts greater risk when providing home loans for bad credit customers.
Paying higher interest rates means that you pay a higher monthly mortgage payment, compared to someone with a greater FICO score.
Finding home loans for bad credit borrowers
Some people decide to wait to apply for a home loan, believing that there are no options for home loans with bad credit. While having a low FICO score is not an ideal situation, that alone is not a reason to avoid applying for the home loan.
Lenders are ready to help borrowers achieve their desire to own a home, with options likely not available through your local bank or credit union.
Order a free copy of your credit report before applying for the loan. When you have a copy of your credit report, you have a better idea of what lenders see when considering your loan application.
Strengthen your home loans with bad credit application
Paying a larger down payment strengthens your chances of loan approval. There are down payment assistance programs that sometimes help borrowers with a portion of the down payment costs.
If you see a mistake on your credit report, contact the credit bureaus. Removing a mistake possibly raises your credit score.
Demonstrate that you have steady income. This goes a long way when you apply for a home loan.
Consider getting a co-signer when applying for the loan. Discuss this with the individual that you want to co-sign, along with your lender, if a co-signer is a requirement.
Pay down your debts before you apply for a home loan. Your debt-to-income ratio is a determining factor in your application.
Ask your lender about your options. Your lender possibly has suggestions that increase your chances of approval for a home loan, and favorable mortgage terms.