Having bad credit isn’t necessarily a bar against getting a mortgage. But as credit.com reports, there are things to keep in mind beyond your approval status.
Believe it or not, your credit doesn’t have to be stellar to get a mortgage. Many banks and lenders will extend a mortgage to applicants with at least a 640 credit score. However, not all lenders are created equal — and, even if you can score a home loan, bad credit is going to seriously cost you in interest.
There are different mortgage programs available for borrowers. Which you end up with can depend largely on your credit. A traditional bank loan usually requires a credit score of 620 or higher. A government backed FHA loan, on the other hand, can sometimes be secured with a credit score as low as 550.
Some things to consider…
Repair Your Credit
You’re going to want to do whatever you can to increase your score to and beyond the 620 mark.
Hitting that threshold (and beyond) will likely make better mortgage rates and terms available to you, plus keep you from going through the type of scrutiny a lower tier credit score bracket often requires.
Pay down your debts, make good on any delinquent accounts, and dispute anything you think is in error.
Prepare Your Payment
Down payment assistance is hard to come by, moreso if you have a low score.
It is reasonable to assume you are ineligible for assistance if your credit score is under 640.
Expect to come up with money down on your own.
Bankruptcy Leaves a Lasting Mark
If you’ve been through bankruptcy, short sale, or foreclosure, expect delays.
There’s typically a three-year waiting period — also known as a “seasoning period” — before you can qualify for a mortgage after you’ve been through a foreclosure or short sale. The waiting time after a bankruptcy is two years.
So remember, a low score will not automatically prevent you from buying a home… but it may put you in a less than ideal situation when it comes to rates and costs.
Still, it can be done and if you’re currently looking for a home loan, be sure to ask prospective lenders or mortgage brokers lots of questions to find the best deal you can get.
Do what you can to improve your score, and you’ll save in the long (thirty years) run!