Historically, anyone who wanted to borrow money to buy a home had to have good credit. Lenders, wary of the risks posed by bad credit borrowers, would not even consider an application for a mortgage loan. However, times have changed and now it is possible to get a mortgage loan with bad credit. There are still penalties, however, and any borrower considering such a loan should be armed with information before beginning the loan search process.
Why Debt Is More Important than Credit Score
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There are several factors that go into calculating a person's credit score. Among the most important of those factors are credit-to-debt ratio and past payment history. While the later of these two reasons can be easy enough to circumvent - current payments that are up-to-date will show lenders you have reformed your ways - the former presents the largest problem. If the reason for your bad credit score is that you have too much current debt to take on another loan, you cannot find a mortgage with bad credit. However, if the reason for your bad credit score is mistakes in the past that remain in the past, you are far more likely to find a lender willing to serve you.
Bad Credit Realities
This is not to say, however, that bad credit as a result of past mistakes is insignificant. No matter the reasons behind a bad credit score, mortgage loans interest rates and other terms will still be based on credit. Therefore, be prepared to pay a higher interest and make sure that you read the fine print on any loan offer carefully. Often, people who have had problems making payments in the past will be subject to much higher fees and other penalties should they miss a payment on their mortgage loan.
Factors That Help Your Application
Though a bad credit score cannot be hidden on an application, there are several factors that you can use to help increase the likelihood that a lender will issue you a mortgage loan. This includes showing proof of sufficient income as well as producing a substantial down payment.
When you are applying for a mortgage, other than credit, your income and down payment are important factors that will lead to either getting the loan you want or getting a denial. Therefore, making sure that the income you currently enjoy is both consistent and sufficient is important. You need to prove to the lender that you have the funds to pay your loan each month and that these funds are a reliable.
In addition, offering a lender a sizeable down payment, generally at least 20-25% of the home's purchase price, is another way to convince the lender that you are serious about your new mortgage loan. A down payment shows your ability to save money and budget which is important once you take on the burden of a mortgage loan.
Making the Choice to Buy a Home
Making the choice to buy a home and apply for a mortgage loan is huge. Over the course of the average human's life, no other loan will be as substantial as the one that is taken to purchase a home. This is a huge commitment, which is why success lies in the borrower's ability to educate himself about the lending process as well as the realities of looking for a mortgage loan with bad credit.
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