There is nothing like buying and selling your home during the summer months—this time of year the real estate market sees a serious boom. However, purchasing a new home means one thing: your finances must be in order so you can get approved for a mortgage loan at the lowest possible rate. But what happens when your credit is in poor shape? Can you still be approved for a loan? The good news is, bad credit does not necessarily mean you will be denied and that dream home can still be yours.
While most consumers with a low credit score won’t be denied a mortgage loan, you will likely pay the consequences in high interest rates. Mortgage experts say you need a score of at least 620 to gain approval from the banks. However, reviews of credit reports show that even consumers with a score between 580 and 620 are being granted loans. Again, while you may pay a hefty interest rate or private mortgage insurance (PMI) and won’t be approved for a large loan, lenders are looking into other factors than just your credit score.
Lenders will look at other compensating factors to determine if you qualify. Compensating factors can include two or more years at the same place of employment, a sizable savings account and proof of rent payments for two or more years. Prior to approving a mortgage loan, lenders will also look for additional information on your credit report. Derogatory accounts reported on your credit file over the course of the last 12 months can hurt your chances of approval, but older negative accounts should not hold you back. While negative accounts are what earned you a low credit score in the first place, more banks are looking to approve consumers who are making a change for the better when it comes to paying off debt. Furthermore, consumers must pay off all judgments or be involved in a repayment plan to gain approval and bankruptcies must be more than two years past the date of discharge.
Another way to gain approval for a mortgage loan is to have a sizable down payment ready to put down on your future home. While saving money for a down payment may be difficult when you have a poor credit score in the first place, coming to the lender with 20% to put down on your home shows your commitment.
Getting approved for a mortgage loan with a poor credit score may seem like an impossible feat but there are loans to be had. If you are in need of advice or assistance, contact SmithMarco P.C. for a completely free case review.