In these economic times, having a poor credit can seem to make everything harder. You can’t get approved to buy the car you want, you can’t get a loan for a house and sometimes you have a hard time getting approved to even buy furniture or jewelry. But, there’s no need to despair! You can still qualify for some mortgage loans, despite your bad credit. Here are 9 ways to get a mortgage with bad credit.
A loan from the Federal Housing Administration (FHA) can be the best option for someone who has less than perfect credit. Because these loans are offered through lenders that approved by the FHA, you’re more likely to get approved. You could get approved for an FHA loan with a credit score as low as 580, but you’ll need to have enough saved for a down payment of 3.5%. If your credit score is lower than 580, you’ll need to be able to pay a higher down payment–up to 10%. The other reason an FHA loan is a good idea is because the interest rates are low but the downside is that you’ll have to pay private mortgage insurance as part of your mortgage payment each month.
If you find that you’re really struggling to get qualified for any mortgage loan, maybe the best thing for you would be to take some time and improve your credit score and then try again in the future. Improving your credit score doesn’t happen overnight, but by paying down your debts, making payments on time, and using your credit responsibly, you will see your score raise slowly but surely.
Another less common option for financing a mortgage loan could be by finding a non-profit organization or an individual or group of investors who are willing to finance a loan with you. While this can be a great option for people with poor credit, the downside is high interest rates that are charged by private investors in order to better protect their investment.
Being able to make payments each month is huge to a lender–nobody wants to deal with a foreclosure or short sale. By being honest about your credit, but proving that you’re responsible and you’ve got a solid job, you may impress a lender enough to qualify you for a loan.
This is an option for those with poor credit, but it’s not an option that works for everyone. If the only way for you to get a mortgage is by co-signing with someone more financially responsible than you, you might not be ready to get a house of your own. However, this option could work if your parents are willing to work with you and help you make the payments.
This option is rare but if you find the right house and owner, you could rent this home, with a large portion of the rent becoming the down payment on the house in the future. You can usually buy the home after a year and a half to two years, using your rent down payment towards the purchase price. The nice thing about this is you can walk away with no commitments to buy at any time, but you won’t get any portion of your rent/ down payment back.
Sometimes when a seller has a mortgage that has been paid off or could be paid off by a down payment, they can choose to do seller financing. You wouldn’t be paying the bank– you would pay the seller directly until your credit is in a better place and you could refinance the home through a mortgage lender. The downside is you will usually have to put down a large down payment, but your credit is given time to improve.
Lenders these days can tell the difference when someone has been irresponsible with money and when someone has struggled to get by because of a loss of job or other problem. Lenders will be more forgiving and likely to lend a helping hand to those who have faced financial hardship through no fault of their own. If you can show a year’s worth (or more) of rental or other payments, that may count for something when attempting to get qualified for a mortgage loan.
Lenders are also more likely to be sympathetic to those without a lot of credit history (thus giving the borrower a poor credit score due to lack of credit usage). It would be much harder for someone with a long credit history and a low score to get a loan than someone who is new to using credit. Also, if you can explain the reasons for your low score, like being unable or late in paying medical bills or student loan payments, lenders might be willing to work with you.
In the end, a lender needs to make sure that the potential borrower is responsible and understands what they’re borrowing and how to pay it back. The lender wants to make sure that this person will have the means and the initiative to make payments on time. Often times, you can still qualify for a mortgage despite your poor credit– you might just need to find some alternative means to do so. There’s always the tried-and-true wait it out theory. If your credit is poor, make changes now so it will improve and in time you’ll be ready and able to qualify for the house of your dreams. That’s how you can get a mortgage with bad credit.