Readers: This is article 19 of 25 from my no-nonsense “Mortgage Basics” quick-reference series.
Finding a mortgage when you have a bad credit score is not impossible — but it usually requires the borrower to make a few concessions, such as paying a higher interest rate. Here are several other tips to help you seal the deal:
Get a stable job. It’s very important that you can demonstrate to lenders that you have a stable income.
Eliminate your debt. By doing this before you apply for a home loan, you’ll minimize your debt to income ratio and make it much harder for your lender to say no.
Save a lot of money. Lenders love borrowers who are willing to put down a large down payment because it means they are less likely to default.
Consider a “rent to own” option. Find a seller who would be willing to accept a contract that sets aside a portion of the monthly rent for the down payment at a later date when your credit is better.
Explain the negatives on your credit report. Believe it or not, lenders may be willing to overlook a poor credit score if they know you had a good reason for paying your bills late — or not at all.
Visit your local housing agency. There are government loans and special assistance programs for people with bad credit.
Find a cosigner. Try to find a family member with good credit who will cosign your loan. Don’t be surprised if they turn you down, however, because they’d be on the hook if you ever default.
Photo Credit: GotCredit
I’d suggest a person in this situation live in a shared housing situation with roommates unless there is some reason they cannot like having children. Then once your finances are under control you can apply for a mortgage