Qualifying for a Mortgage with a Bad Credit

Your credit history is one of the most important details that lenders consider when approving you for a loan. Your ability to get hard money loans can be compromised by a bad credit or a low credit score as lenders will consider you at risk of defaulting on your loan. 

However, you don’t need to worry because it is still possible to get a mortgage even if your credit history, for instance, late payments, and low fico rates among others.

Many national banks avoid the risk by encouraging poor credit mortgages to new home buyers. This does not mean that there are no lenders that can extend hard money loans to people with bad credit history. A prospective home buyer with a bad credit history experiences some challenges in acquiring a mortgage. This includes;

Low Fico score

A low fico score means that you have bad credit. Credit scores range from 350-850. If you are closer to 850, your score is good. For home buyers with a bad history, it means that their credit score is somewhere below 700.

You will, however, have fewer options in getting a mortgage if your credit score is in the 620-640. This is mostly the case because the moneylenders are also investors. The chances of a borrower with a bad credit to default on commercial hard money loans are statistically higher, and in this case, the note holder will have to sell the assets to get his money back.

You can get your credit score for free by contacting your credit card company. To get a better choice for lenders to offer you a loan, you will have to maintain a credit score of above 680. However, you can still qualify for a commercial hard money loan such as the Federal Housing Administration (FHA) loan with a credit score of 620 but you will have to put down at least 10%. You should have a credit of above 640 to get the best rates and low money down the deal with the Federal Housing Administration (FHA) program.

Unstable income

When lenders look at your loan application, they take into account your ability to pay your current expenses on time every month. They also check to make sure that you are employed and have a steady income for the last two years. A job loss in the recent past may affect your ability to pay your bills, and it could have a lower credit score. Your ability to pay the loan is dictated by your ability to pay bills on time every month.

Maintaining a steady income and you will easily find lenders willing to offer you a mortgage. You can also present a letter from your new employer outlining your current and future compensation. This letter will then be verified with your human resource department.

Difficulty coming up with a down payment

If you have a low and credit score, it means that you don’t have sufficient money in the bank. Therefore you cannot put enough money down to get a loan. Get your credit score back to 640, and you will be able to qualify for commercial hard money loan with a lower down payment.

Foreclosure on your credit report

You can get some home loans with a foreclosure on your credit report. However, it will make it more difficult. It is recommended that you wait for two years after a bankruptcy before you get a home loan. To get a mortgage, you will need to show a credit report showing that you have financially recovered from the loan