4 Steps to Receiving a Mortgage With Bad Credit
So many people are looking to jump into Rockland homeownership. With rising rent prices, a mortgage is sometimes the cheaper option, depending on the area. However, many potential Rockland buyers are faced with the hard fact that their credit is less than good. In fact, many potential buyers have downright bad credit.
Thankfully, all hope is not lost. Here are 4 ways you can still buy a Rockland house if you have bad credit.
Flaunt a Down Payment
This is a double-edged sword. A person with bad credit may have little to no savings, but having a high down payment can make up for that low score. As soon as buying a Rockland house becomes a goal, start saving. That higher down payment is going to make buying a Rockland house much more feasible.
The down payment should be at least twenty percent of the cost of the desired home. Anything higher will just increase a buyer’s chances. A lender may overlook bad credit, to some extent, if a buyer can prove they have changed their financial ways and have the ability to save up a large down payment.
Use an FHA loan
FHA loans, or Federal Housing Administration loans, are the better option for someone that does not have great credit. The FHA loans are not nearly as strict as other loans when it comes to buying a house. Loans through Fannie Mae or Freddie Mac are going to be much more difficult to get approved, especially with a low credit score.
Finding a lender that is willing to work with a low credit score is key. FHA loans can be obtained with a credit score of 580 as long as there is a decent down payment provided. Most conventional loans require a higher score of 620 or higher. Each lender also has their own stipulations for credit scores, so it is important to shop for a good lender before applying for the loan.
Focus on The Good Points
Meeting with a lender is important for someone with bad credit. Applying online will result in a denial. However, a face to face meeting can help to sell a lender on why the credit score does not reflect the buyer’s ability to make payments.
A credit score can become damaged quickly. Many lenders are willing to work with someone with a low credit score if they know why the credit was damaged. If the reason has been resolved and the person has secure finances, they can submit a manual underwriting request to override the general denial.
Debt in credit cards or other loans is seen as negative. These debts are typically voluntary and not paying them off shows a lender that the buyer may have poor buying habits. Debt in medical or student loans is different. It shows a person was in a bad situation medically or they were trying to better themselves through schooling.
Alternative Mortgage Options
Most people go to a major bank in the area to start their mortgage process. This type of lender is going to have stricter guidelines for providing a buyer with a mortgage. With poor credit, it may be beneficial to look into private mortgage options.
Private mortgage options come in a variety of ways. Getting the loan with a family member, a friend, or even a private lender can work. The important part of this type of loan is that the terms are worked out between the two parties. Most private mortgage options can be more expensive for a buyer, but it is an option for someone who cannot get a loan at a bank.
Poor credit does not help the home buying process. Lenders want to see Rockland buyers with great credit history. That does not mean that a lender is not willing to work with a buyer who has bad credit. Make sure to meet in person to discuss finances, aim for an FHA loan, have a large down payment, and do not despair if a lender says not right now.