Getting a mortgage loan for your dream home ain’t easy. You have to sign tons of paperwork, provide a great number of requirements, and meet a list of ideal qualifications. What would make the process harder is knowing that you are likely judged and condemned based on your current credit file, which you think is not that impressive.
The good news is you can still qualify for a mortgage and purchase the home of your dreams even with bad credit. How? Stop condemning yourself and take a look at these five possible ways and see what will work best for you.
Work on your credit score
That three-digit number derived from your credit history is one of the greatest factors in getting approved for a mortgage. Know your credit score by contacting your credit card company or bank. Keep in mind that good credit is 700, fair credit ranges between 650 and 699, and poor credit are anything below 649.
After finding out your credit score, try to improve it. One of the best actions you may pursue is eliminating your current debts. If you have overdue credit card payments, student loans, or even payday loans, always pay the minimum one the agreed deadline. Once the lenders see that you’re making an effort to pay off your existing debts and improving your credit score, you’ll have a greater chance of qualifying for a mortgage.
Maintain a steady income
There are moments when you feel like you’re not satisfied with your job, or you hate boss’ demands as well as your colleagues’ toxic gossips. But when you’re applying for a mortgage with bad credit, you have to set aside all your frustrations and focus on securing your position in the workplace.
Lenders won’t be pleased to find out that you don’t have a stable source of income. They will require documents such as a payroll advice and will check if your income is enough to pay off your current expenses every month. They will also take into account if you have been employed with a steady income for at least two years.
Find a co-signer
Do you have a close friend or a family member with good credit? Another way for you to get approved is by presenting a co-signer. The person who will co-sign will be responsible for making the payment of another person’s debts once the original payer defaults. He or she will only be called out when the situation calls for it.
Co-signing is a risky move. It may result not only to huge financial blunders but to broken relationships as well so make sure you settle only for a mortgage payment your budget can afford.
Go for a subprime mortgage
One of the biggest disadvantages of having a poor credit file is you are looked at as a higher loan default risk. With this, lenders usually offer a sub-prime mortgage, a high-interest loan granted to individuals who won’t be able to qualify for conventional mortgages due to deficient credit ratings. This type of loan works the same way as other loans wherein the better your credit score is, the lower your interest rate will be.
Consider a lease to own agreement
The agreement is recommended if your credit score is too low for a traditional mortgage. By entering a lease to own agreement, you agree to have a portion of your monthly lease payment go automatically towards purchasing the home while the rest of the payment is considered a rent payment. You just have to consult a realtor who can find you a homeowner or landlord who wants to sell their home and is willing to enter into this kind of agreement.
The lease to own setting gives you the chance to try out the home first before buying it, save for a downpayment, and improve your credit score. It usually lasts for two to five years. If you change your mind about the home, you can cancel the purchase while still in contract but the homeowner cannot give you a refund of the money you already paid as a downpayment.
Like other young adults, Ina also experiences struggles in saving money, yet she finds a way to become a responsible spender. She shares her views on money issues by being a daytime writer for Speedy Money Payday Loans, an Australian-based business, providing short-term borrowing solutions.
July 28, 2016