Good credit scores are required for many monetary transactions that any adult may have to undergo. A good example of these transactions would be the need for someone to apply for a mortgage loan.
All types of loans would make the bank or lending company investigate your credit history. Because of this fact, it is generally advantageous to have high credit scores so that your application will easily be approved. At the same time, the interest placed on your loan will be reasonable.
Of course, there are still a few ways to get a mortgage loan, even with a bad credit. Some of them are:
Take the time to research options.
Your mortgage loan does not need to come completely from a bank. Loans can come from many different places and individuals, although the latter may not be able to grant you huge amount immediately. Also, different loan offers may be available to you at lower interest rates and programs. All you need to do is to look for suitable options for you, keeping in mind that you have bad credit and will need to look for places that are more lenient with credit scores.
If you are not going to use a traditional bank to finance your home, there are other ways you can make it happen. Some of your options include:
- Owner Finance – When you cannot seek help from a mortgage lender, you might want to ask the seller finance you. In owner financing, you pay the down payment, and pay to the seller the remaining price plus the agreed interest according to the terms of the loan.
- Rent to own – In a rent to own scheme, you pay monthly rent to the seller, and a portion of what you pay goes into the price of the home. And then, you can buy the home at a later date, when you are ready to pay the remaining balance of the price.
- Lease option – With the lease option agreement, you and the homeowner agrees that you will rent the home, and that you have the option to buy it within a specific period of time. To have the option, you will have to pay an amount separate and distinct from the rent or purchase price.
- Private financing – As earlier stated, you also have the option to borrow from an alternative lender, such as a person or a business. It may be a company in the money-lending business, or even a close relative or friend. Most private financing offer loans that are secured by a collateral.
Be able to explain your credit.
You should know how to defend the aberrations that can be found in your credit history. If you have large debts, you should know where they come from. Don’t just shrug them off. If your answers are reasonable, your loan application may be given more leverage.
Make sure you have “compensating factors” if you have bad credit.
You probably have something that will help erase doubts about your bad credit in the minds of your mortgage lenders. Some compensating factors to help justify your trustworthiness include the following:
- Long employment history – One of the factors lenders look at is your job stability. It certainly helps if you have been in your job for the past 3 years, or if you change jobs but remains in the same line of work. Lenders also appreciate it if you change jobs due to an increase in income or a promotion.
- Assets in the bank – Some assets that look favorable to lenders include you checking, savings and money market accounts, bonds, stocks, retirement accounts, and gift of equity, among others.
- Larger down payment – When you offer a larger down payment, it only means one thing – you have a good amount of money on hand. That being said,
- A regular income can help you – Although credit history has a big effect on the approval of a lending source, credit scores are not exactly everything. Proving to the company that you have the ability to repay your loan is a great asset. Since the only reason that credit scores can make companies hesitate on offering you their services is because they are unsure of your ability to repay the loan, disproving that notion can easily improve your application’s eligibility for their offers.