Your credit history is one of the most important details lenders consider when approving you for a mortgage. Bad credit or a low credit score will compromise your ability to get a mortgage, as lenders will consider you at risk of defaulting on your loan. Obtaining a mortgage has become even more difficult due to the struggling economy and the record number of foreclosures in the housing market. However, it may still be possible to qualify for a mortgage and buy a home, even if your credit history is far from perfect.
To qualify for a mortgage you will need your credit score. Your credit score is a three-digit number derived from your credit history. It is used by lenders when you apply for a credit card and is a key factor in receiving a mortgage from a lender.
You can get your credit score for free through contacting your credit card company. Your bank can also provide your credit score, for a small fee or for free during promotional times of the year. Avoid using online credit score services, as they may be scams trying to steal your personal banking information.
If using an online free credit report, make sure that you are using a legitimate company, such as Credit Karma, Credit Sesame, or Mint. If you are unsure, you can contact a credit counselling agency, bank, or lender that can recommend you a legitimate and reputable site to use.
Before you start looking at properties, start shopping around for mortgages. Talking to lenders before you find a home will let you know how much you qualify for in a mortgage. This number will be the maximum amount you can get in a mortgage. This will help you find a home that you can afford.
You are under no obligation to sign a contract with a lender when you visit them. Even if you are not ready to purchase a home yet, you can still consult a lender to understand what state your finances are in, how much of a mortgage you currently qualify for, and how you can work on your financial situation to get a better deal.
If you have a bad credit score, a lender can help you find ways to improve the score. They can also give you advice on how to qualify for a mortgage.
If you have family members or a partner with good credit, whilst you have bad credit, consider asking them to co-sign a mortgage for you. However, be wary of co-signing for a home you cannot afford. If the monthly mortgage payments are too high for your budget, you may end up entering into a co-sign agreement for a home you will lose in a year.
Co-signing can also be risky as you are involving family with money, and you may end up putting those relationships in jeopardy if you can’t afford your mortgage payments. Any person who co-signs on the mortgage must have good enough credit to qualify for the loan themselves, as if they also have bad credit it won’t work.