It’s not surprising that someone with less-than-perfect credit would assume that qualifying for a mortgage is completely out of the question; however, while many would-be borrowers need to think hard about working to improve their finances before applying, there are still mortgage options available for homebuyers with a shaky credit history.
YOUR CREDIT PROFILE
Mortgage lenders obviously place a great deal of emphasis on your credit score when determining whether they want to put their money behind you. While it might not state the whole truth, your score represents how you’ve handled credit in the past and generally serves as a decent predictor of your ability to repay loans in the future.
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Ideally, lenders will want to see scores of either excellent (750 or above) or good (700-749), so it’s always a good idea to not only know your score, but to fix any errors before speaking with a mortgage lender. From there, a lender can help you take the necessary steps to improve your overall credit standing, especially if your current score is too low to qualify for assistance.
LOANS FOR POOR CREDIT
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Still, it should be uplifting to know that not all is lost if you’re in the process of trying to revitalize your financial standing. During the housing boom, borrowers were regularly approved for loans—through subprime lenders—even with poor documentation and low scores; however, they were hit with higher interest rates.
Today, while lenders generally refrain from taking those same risks on struggling borrowers, the Federal Housing Administration’s loan program still insures lenders with a credit score as low as 580 (with 3.5% down). Most lenders, though, err on the side of caution and ask that homebuyers have a credit score about 620-640, while also maintaining documentation of adequate debt-to-income ratios.
SPECIAL PROGRAMS
It’s important to note that not all bad credit is a product of financial mismanagement. In cases where low scores are the result of personal hardship, the Federal Housing Administration also offers a “Back-to-Work” program, which makes concessions for borrowers looking to qualify for a loan after a period of partial or total unemployment.
FINAL WORD
In the end, the only way to truly understand what you qualify for is to meet with a knowledgeable mortgage lender who can go over your individual circumstances. Most lenders do not charge consult fees, so even if you’re still unsure about where you stand, you can still benefit from the extra guidance and advice.
If you’re interested in learning more, I would love to speak with you. Please feel free to contact me at 404-445-1033.
