It’s no secret that having bad credit can make it difficult to get a mortgage. But is it impossible for first-time buyers with bad credit to get a home loan? Surprisingly, the answer is no. In fact, there are a few things you can do to improve your chances of being approved for a mortgage loan even if you have poor credit. So don’t give up before you’ve even started!
Factors that can lead to a “bad” credit score
Your credit score can affect your ability to get a loan, a credit card, or a new home. Bad credit mortgages can happen to anyone, any credit score below 600 is considered to be “bad”. If your credit score falls within this range, consider these factors to help improve it as soon as possible.
- Late payments. Make sure you’re making payments to your credit card or loan on time.
- Credit utilization rate. You should try to keep your credit utilization rate below 30% to show you can manage your debt well.
- Old debts that have not been settled. Although debts don’t settle themselves, most disappear from your credit history after 7 years. Any lingering debts you have can negatively affect your credit.
- Bankruptcy or other negative credit history. Similar to old debts, bankruptcy will stay on your credit report for 6 to 7 years, which will be something mortgage lenders will be looking for.
- Too many credit inquiries in a short period of time. This can increase the risk you have as a borrower and can have a noticeable impact on your credit score.
Can you buy a house with bad credit?
If you’re wondering if you can buy a house with bad credit, the answer is YES – but it’s not going to be easy. Mortgage lenders are going to be much more reluctant to approve a mortgage for someone with poor credit, so you’ll likely have to put down a larger down payment and pay a higher interest rate. But it is possible, so don’t give up on your dream of homeownership just yet. There are several things you can do to improve your credit score and make yourself a more attractive candidate for a mortgage.
- Check credit score & fix credit report errors
- Pay off any outstanding debts
- Don’t open new lines of credit cards or loans
- Monitor your credit score regularly and make changes as needed
If you are still unsure of how to go about this process or where to begin your search for homes, our team at the Ingram Mortgage Group would love to tell more about our services or answer any questions.