Lenders have a specific set of criteria to determine if a borrower is eligible for a mortgage. However, we cannot deny that a significant number of people have poor credit, leading them to believe there is no chance to get approved for a home loan. The good news is, you can always improve your credit score and credit history. Also, there are mortgage options available for individuals with bad credit. You can also contact a property lawyer to help you understand more about it.
According to Experian Information Solutions, only 20% of Americans have decent FICO scores. This is the credit score range between 580-669. If you have a score below 580, this is already considered bad credit.
Thankfully, there are government programs that allow borrowers with bad credit to qualify for a home loan such as FHA Loans San Antonio and VA Loans. Now you can access mortgage programs that will accept your home loan application even with bad credit.
The following tips can help you qualify for a mortgage, even if your credit score is poor.
Have Ample Cash Reserves
Two months is the typical cash reserve required by mortgage lenders. If you have bad credit, save up enough reserves to cover you for at least six months. This way, you can show your lender you have the means to keep paying them back even if emergencies and other unforeseen events happen in the future.
Put Down A Bigger Down Payment
Some lenders are willing to offer your home financing for as long as you can compensate. In this case, putting down more than the minimum down payment can help your lender reduce the risk that comes with approving your loan. You’ll also get to avoid Private Mortgage Insurance by paying at least 20% down.
Pay Off Your Other Debts
One reason that can cause lenders to deny your application is a high DTI ratio. If your Debt-To-Income ratio exceeds 50%, you can say goodbye to your chances of getting a home loan. You can avoid this by paying off some of your debts to lower your DTI ratio.
Find Additional Sources Of Income
If your lender denied your mortgage application due to low monthly income, then it would be best to find ways to increase your revenue. You can opt to find another job, do it part-time or remotely. Do include all of your income sources to make sure you don’t miss any.
Try To Improve Your Credit Score
Following credit rules can help you increase your FICO score. Pay off your debts on time. Pay in full whenever you can. Keep your balances low, refrain from moving around debts and don’t open new credit accounts if there is no immediate need for you to do so.
Recommended Read: 7 ways to improve your credit score
Fix Any Errors On Your Credit Report
If you rarely make late payments, go and pay your credit report a visit. Check it for any errors and discrepancies, make sure to fix the mistakes before applying for another home loan.
The best way to get approved for a mortgage is by making sure you meet the minimum requirements set by your lender. If you know a property lawyer, it will ease you to understand more about credit score and other property-related issues. By improving your credit score, fixing credit report errors and following the tips mentioned above, you can have better chances of landing a good mortgage deal.