Borrowers whose credit scores have taken a nose dive, due to a recent short sale, bankruptcy, or missed monthly payments, can have a difficult time qualifying for a mortgage or refinance through banks or credit unions. Mortgage loans for individuals with poor credit do exist.
These borrowers often must pay a higher price, but it’s not impossible to secure financing only a few years after a major financial problem. If you’re in need of a mortgage or refinance with poor credit, read on to learn how you can obtain financing despite your credit history.
Tips for Finding Home Financing with Poor Credit
If you have a low credit score, you will have a more difficult time obtaining financing. But you can take some steps to improve your creditworthiness in the eyes of mortgage lenders. Demonstrate creditworthiness by:
- Being upfront about credit history. Explain what happened and what you are doing to improve.
- Demonstrating stability. Stick with the same job for at least two years.
- Saving a substantial down payment (more than required).
- Paying off collection accounts and making all payments on time.
Shop These Types of Home Loans for Bad Credit
When looking for a home loan, you will quickly learn that there are a myriad of different types of mortgages. These all have different federal regulations that determine approval and set limitations on financing terms. Mortgage loans which accommodate lower credit scores include:
- Conventional, 620 minimum FICO credit score
- FHA, 580
- USDA and VA, unspecified minimum score
When you take out a mortgage loan with bad credit, you should only consider the loan a temporary solution. After about two years of paying on time and cleaning up your credit report, you should be able to qualify for a much lower interest rate and more desirable repayment term. Once your credit score improves, you will want to consider refinancing your mortgage loan to take advantage of better interest rates.
Beware When Applying for Home Loans with Bad Credit
When trying to get a mortgage with poor credit, you will likely have to pay a higher interest rate and potentially higher closing fees due to risk-based pricing models. Borrowers with poor credit, however, should beware of loan sharks and predatory lending.
Verify your mortgage broker’s license with your state board. Do not allow your desperation to find a loan make you susceptible to loan sharks who offer risky, hard-money loans.
If you are uncertain about a deal you have been offered, you can speak to your local, government-sponsored credit counselors regarding fair pricing, security and repayment structure for home loans with bad credit.
Learn More About Home Loans for Bad Credit
At Mortgage Investors Group, we offer a variety of mortgage loans designed for borrowers with poor credit. Our home lending experts can help you determine your best path to improving your credit history and purchasing a new home at a fair price. For more information, contact us today.