Posted by John Doe
Perhaps you have experienced financial setbacks in the past and they have resulted in a less than ideal credit rating. Unfortunately, it can take time to improve a poor credit score. You may even be ready to purchase a home now that you are in a better financial situation, but is it possible to get a mortgage with bad credit?
Can You Get a Mortgage When You Have Bad Credit?
The short answer is that yes, it is certainly possible to get a mortgage even if you currently have bad credit. Bad credit, for the record, is considered to be a credit score of below 600. If you haven’t paid your bills on time, you have gone bankrupt in the past, or you have a lot of debt, you, like many others, may find yourself with bad credit.
Of course, bad credit means that you are considered a high-risk to lenders, which has financial repercussion. Typically you will have to pay a higher interest rate. You will also have to demonstrate to the lender that the property you are planning on buying is a good-to-average home as rated by an appraiser. Finally, you will have to show that you have a sufficient enough and dependable income, which applies to all loan borrowers, of course.
What Does Bad Credit Mean for My Mortgage?
- Less Optimal Mortgage Rates
Bad credit means lenders are less willing to lend you money. Big banks, for example, will not lend to you. Depending on your credit score, you are left with two options. If your credit is in the 550 to 700 range, you can secure a mortgage with financial institutions other than big banks. These are trust companies that work primarily with people who have bad credit. If your credit score is less than 600 or you’ve had to declare bankruptcy within the last couple of years, you will need to get a mortgage via a private mortgage lender.
It is important to note, however, that all options offer great products. In fact, people are increasingly choosing private mortgage brokers because they offer better rates, thanks to their access to a wide range of lenders. The problem is that you will have to pay a higher rate than you otherwise would have if you happened to have good credit. Of course, it goes without saying that you should never miss a mortgage payment if you want to be able to negotiate for better terms at any point in the future.
- You Will Have to Put Down a Bigger Down Payment
Since you are considered “high risk,” lenders have to compensate by having you make a bigger down payment. Whereas those with good credit can put down a minimum of 5%, those with bad credit may have to put down somewhere between 15% and 25% to be considered. However, there is certainly a benefit to this. While it may take you longer to secure these funds, a bigger down payment means that you are entitled to a better mortgage rate and smaller overall mortgage.
- You May Have to Pay Additional Fees
Those with bad credit may also be required to pay additional fees than they otherwise would have. In some cases, you may be required to pay up to 1% of the mortgage loan value in order to process your application. In addition, the broker could also charge you an additional 1% because they will not benefit financially given that you have poor credit. Of course, these additional fees will vary depending on what broker you choose.
How to Get a Mortgage with Bad Credit:
- Choose a House that Is Appraised As Good to Average
The most important requirement to ensure that you will be able to get a mortgage with poor credit is by choosing a house that is appraised somewhere in the range of good to average. Your property is important to lenders because it means that in the event that you are unable to make your mortgage payments, they at least have your property to count on.
- Ensure that You Have a Sufficient and Dependable Income
Keep in mind that lenders will look at more than your credit score when determining whether or not you qualify for a mortgage. You will also need to demonstrate that you have a sufficient, and ideally, a dependable income, which shows lenders that you are capable of making your monthly mortgage payments.
In this case, steady income that is verified through Notices of Assessment (NOA) is more ideal than income that can change month to month, which would be the case for those who are self-employed or those who have jobs that are commission-based. However, if the latter applies to you, the lender will simply make an estimate based on what you typically receive monthly.
If you are looking to buy a home with bad credit, Mortgages, Mortgages has a range of mortgage options. Contact us today for more information.