How to Qualify for a Mortgage if You Have Bad Credit

Published by julia | Filed under Buyer / Seller Tips, Miscellaneous, Real Estate, Shout Outs

Lots of people today have bad credit, but want to buy houses to take advantage of the remarkably low prices available in the real estate market today. The good news is that while banks are being more strict in their lending policies these days, this does NOT mean you can’t buy a home. There are still several options available for bad credit mortgages. Before you decide on which option is right for you, you need to explore those options thoroughly, so you get the right mortgage with the right terms. It can be done! Here’s how.

When you’re looking for a bad credit mortgage, your options essentially consist of the following:

1.  Go to conventional lenders and try to find one that will work with you based on your income, rather than your credit score.

2.  Work on restoring your credit first, so you can qualify for better mortgage deals.

While there are a handful of companies that will give you a mortgage regardless of your credit, you’ll pay for that privilege with high interest rates which will send your monthly housing payment into the stratosphere.  Over the long-term, you’ll end up paying a lot more for more mortgage, often hundreds of thousands of dollars more, than if you’d been able to get a lower rate.In fact, for the first few years of your loan, you won’t even be paying anything down on the principal. It will ALL be going to interest! Who needs that?

In addition, your closing costs may be higher if you have bad credit, and you’ll probably also need to pay private mortgage insurance (PMI), which is basically a financial penalty for having a low credit score. You can avoid all of this by spending 30 to 90 days fixing your credit before applying for a mortgage. Pay down existing debt, even old debt, reduce the number of credit cards you have to no more than two, and keep the balances on those cards down to a low amount, no more than 20% if the total amount of credit available to you. If you do this, your chances of getting a mortgage at a great deal will go up dramatically, and you won’t have to pay the heavy financial penalties involved in using a bad credit mortgage lender at all!