You may be wondering if you can borrow a mortgage with bad credit. Homeownership is a goal for most Americans, but it can seem out of reach.
Your credit score can determine your interest rates, how much you can borrow, and if you can even take out a mortgage in the first place. Unfortunately, a few bad decisions or honest mistakes can damage your ability to buy and finance a home that fits your needs. Does this mean you won’t be able to buy a home with a low credit score? Not necessarily.
There are loan programs and alternative options, as well as strategies for repairing your poor credit score. You can get a mortgage with bad credit, as long as you understand the process and proceed with caution.
Bad Credit
Your credit score is a reflection of your ability to pay bills on time and highlights if you responsibly use credit (in the form of loans, credit cards, etc.). Your credit score improves with the amount you’ve borrowed and paid back, and if you don’t abuse available credit. Furthermore, your credit score declines if you miss payments, borrow a large portion of your available credit, or default on loans. If your score drops below 650, you may have a harder time finding a lender and your interest rates might rise.
Improving Your Credit
One option to consider if you want a mortgage but have bad credit is to work on improving your credit score. Stop using credit (cut up those credit cards) and consider working with a debt consolidator that can minimize your payments and interest each month. Your debt-to-credit ratio is important, so paying down one account to improve the ratio can improve your score as well.
Sometimes, negative items on your credit report are incorrect, so carefully inspect your report and work on resolving any incorrect items. You can dispute fraudulent line items or completed issues to clear them from your credit report.
Mortgages for Bad Credit
Lenders can offer subprime mortgages for aspiring homeowners who don’t have stellar credit scores. These mortgages can be dangerous, though. They can offer high-interest rates, variable interest rates that start low and rise over time, or negative amortization—which means that your monthly payments don’t cover the heavy interest, so your balance can actually rise month after month.
The Federal Housing Administration also offers loan programs for first-time or subprime buyers, and even specialized programs for veterans, teachers, police officers, firemen, and other public servants. You can also qualify for mortgages despite your bad credit if you can put 10% or more down at the initiation of the loan. However, just because a lender will give you a loan doesn’t mean you should take it every time. Be sure you keep your mortgage payments under 30% of your monthly income.
ZechBuysHouses, LLC Makes House Buying Easy
If you’re a resident of Colorado Springs, Colorado, who’s looking to buy another home or improve your credit by getting out of a predatory mortgage, ZechBuysHouses is ready to help. Reach out right away so that we can buy your property for a speedy, all-cash offer.