10 Tips to Getting a Mortgage with Bad Credit

Did you find a cozy home on a tree lined street with a lovely picket fence that you know your family will just love? This can feel like a huge challenge, especially if you have bad credit. But fortunately, people with bad credit have more options than they might have realized at first. Here are some helpful tips, so you can prepare to move in soon!

1. Start by understanding and getting to know your credit rating. You can get it for free one a year, every year from the TransUnion, Experian and Equifax, the 3 credit reporting agencies. If you’ve realized you’d like to get a mortgage, then now is the perfect time to get your 3 free credit scores to check and see exactly what information is on your credit report. Some discover their credit score it not as bad as they originally thought it might have been. Others have even found mistakes on their reports too.

2. Do keep in mind that someone with a credit score that is “fair” or “poor” will be considered to have poor credit. That is this range that a lender will be looking for. Here are the ratings and what these numbers mean:

740 and higher = excellent

661 to 739 = good

601 to 660 = fair

501 to 600 = poor

500 or lower = bad

If you realize that you have “fair” or “poor” credit, then now is the time to take proactive steps so you are prepared to speak to lenders and be your best advocate. It is the unprepared potential new homeowner who is at a true disadvantage. When you realize your credit score and what you might face, you are in some ways in a much better situation because there are things you can start to do.

3. Remember to always review your credit reports to see if there are any errors. If so, report them immediately to the 3 credit agencies. If there are bills that you have left unpaid, contact your creditors to make arrangements to pay these bills. While the change in the credit score will not happen quickly, this will help to raise your score. Keep in mind that if there are any errors or bills that you are now paying in full, it quite likely will take several months for these to appear as a positive rating on your credit score. This is one of the critical reasons that it is so important to obtain your credit scores and report as soon as you are considering looking at a mortgage. So if any mistakes or errors are there, you have the power to fix them before your official application is submitted to a lender.

4. Get on track now with all of your payments. This can be quite helpful and will also show your potential lenders that you are serious about paying a mortgage. Create a system where you are paying all of your bills on time. On time payments matter a great deal when it comes to your credit score. A lender will take you seriously when they realize you are making 100% of your payments on time, every single time without fail. Consider signing up for automatic bill payments, as this can be an option with some of your utilities, telephone company or other companies that you obtain services from.

5. Realize that most lenders today understand the difference between someone with irresponsible credit & someone who has lost their job. The Great Recession of 2008 has shown many companies and banks that there can be hardworking, responsible people who can be out of work, through no fault of their own. So if you’ve gone through a tough time where you haven’t worked for six months or even longer and it has affected your ability to pay your bills, it’s important to be upfront about your struggles. There is no need to be overdramatic or give them a “sob story” to hear, simply explain your situation.

6. Show records of your rent payments to your lenders too. If these have all been on time, this can work in your favor. Now this is one of the best things that you can do if you have bad credit and are highly concerned about a poor credit score. If you have a good track record of paying your rent on time, this can help your situation tremendously. Show your stubs or rent statements to the lender for at least the past 12 months.

7. Realize that some lenders use a computer software program to at first determine if you are qualified for a mortgage. Fannie Mae is one of such to use a computer software program. If you are turned down, you may have to speak to someone to explain your situation. Today’s companies are embracing technology for more and more purposes. It is simply logical, technology is quite efficient and saves time more often than not. But if you have a special situation, your first application may get turned down. So don’t be surprised if it does and be prepared to approach a supervisor or manager to have a discussion. Do ask if a computer software program determines the first round of eligibility and then see if a person can review your application.

8. Be prepared to explain your low credit score, don’t get defensive or offer excuses. Yes, it’s completely understandable that talking about this may not make you feel good. It’s a tough thing to think about for most of us. But now is actually a good time for you to convince them as to why you are a good candidate to give a mortgage to and you need to make the most of it. Prepare your story ahead of time so you don’t ramble and your facts are well organized.

9. Know that lending is based on trust, that the lender must be confident in your ability to pay the money back. This is one of the most important things to understand about applying for a mortgage. If someone lends you money, they need to trust that they will get it back. So how can you make them feel more of that trustworthiness from you? Provide them with documents so they can see your history and as #9 states, explain your situation.

10. Play “the numbers game” and contact several lenders, so one will be certain to say “yes” to your request. Don’t neglect this important step. Lots of people get turned down by one or a couple of lenders, no matter what their credit score is. So you’ve got to apply to at least a couple of places. We recommend at least 5. Then you’ll find that one who will say “yes” and soon you’ll be moving your family in to your new home!

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