If you have an excellent credit rating, it will not be difficult for you to obtain a mortgage. Almost all lenders will be more than happy to serve you. On the other hand, if your credit rating is low, you will have a hard time getting a loan to finance your new home.

Your credit reports and credit score are very important for creditors to find out if you are a good or bad candidate for a home loan. Aside from this, assessing your creditworthiness gives lenders a better idea of ​​how much money they can confidently lend you. In other words, this can ensure that you make your payments on time.

Credit reports and scores will help a lender know if you have paid off your previous loans without meeting the deadlines. If you’ve had a lot of late or delinquent payments, you likely have a low rating. The mention of any of these may be a red flag to your potential lenders. Since the lender’s goal is to make a lot of money, they may take you as a risk.

Unfortunately, if you’ve changed your habits, they’ll still look into your past to get an assessment of whether it’s a good idea to do business with you. Similarly, if you have a credit score in the 750 range, the lender will still consider using your debt. If your reports show that you have taken out loans quite often, they may find it too risky for them to give you a loan.

First time home buyers

If you’re a first-time homebuyer, getting a conventional mortgage loan with a bad credit rating can be a little tough to crack. However, it is not an impossible goal to achieve.

Tips to qualify for a mortgage with bad credit

Below are some tips you can use to improve your chances of qualifying for a credit score. If you follow these tips, your application will likely be approved.

1. Make a larger down payment

First, if you don’t qualify for a non-traditional loan, you can wait a while and save money for a larger down payment. The problem is that lenders consider borrowers with bad credit scores to be a big risk. In general, lenders are willing to make loans to lenders who can make a down payment of at least 20%. So if you can pay as much as a down payment, you may qualify.

2. Reduce the use of your debt

If you have a poor credit rating and are trying to get a loan, we suggest you lower your overall debt-to-income ratio. This ration allows a lender to calculate the amount of money that he can pay back.

3. Use your rental history

In most credit reports, you cannot find information about the user’s rent payments. But if you can, you can show that you made all payments consistently for the last 24 months. Apart from this, some other reporting tools can do it as well. They may include RentTracki, Rental Kharma, and Rent Reporters, to name a few.

Before choosing a tool, we suggest you do your homework to learn about monthly charges and fees. Aside from this, you should find out if your private data can be protected and what steps to take if you cancel the service.

Please note that these tools provide reports only for the major credit bureaus. However, you can also find some that can send your reports to all of them.

4. Explain your circumstances and credit rating

Another good way is to write a letter to explain your situation. In the letter, you should mention the reasons for your negative points on your credit report. And try to convince the lender that mistakes won’t happen again.

Also, you need to make sure that you are trying to handle the situation you are in. For example, you can help them realize that you are looking for a job. Before you talk to the lender, make sure you get documents detailing the credit challenges you’ve been facing. Aside from this, if you can itemize derogatory items on your credit history, you may be in a better position to get a mortgage.

When talking to the lender, be sure to be specific. You should not be afraid to provide details of your concerns and needs. This will save you a lot of headaches in the future.

Conclution

In a nutshell, if you have a bad credit score but are still looking for a lender to give you a loan for your first home, we suggest you follow the advice in this article. Be sure to discuss the matter with your mortgage specialist or mortgage broker.