Few Expert Hacks to Achieving Mortgage Home Loans with Bad Credit Score

Undoubtedly, credit score is a vital part of an individual’s financial status. It is a statistical number that evaluates a person’s creditworthiness and is based on credit history. Your credit score is a lender’s quick tool for determining whether they can trust you as a borrower. A person’s credit score usually ranges from 300 to 850, and the higher the score, the more financially trustworthy you are as a borrower. When buying a home, your credit history plays a pivotal role in it. Lower credit score often indicates risk and many lenders don’t prefer to provide loans to these people. But, does that mean you couldn’t get home mortgage loans atoll? The answer is, it varies. Getting approved for a home mortgage loan with a bad credit score is no easy task. Especially after the 2008 housing market crash, sub-prime loans almost disappeared. However, still there are ways to get home mortgage loans with bad credit score. Wanted to know the tricks of getting your home mortgage loan approved with bad credit score? Continue reading the blog post to know a few expert hacks to achieving mortgage home loans with bad credit score.

Know Your Credit Score

Before actually obtaining a home mortgage loan, it’s significant for you to know your credit score. Most people (approximately 60 percent) don’t even know what is their credit score. If you are a part of this category of people, you may assume you have a bad credit score when you really don’t. It is important to know the actual score to take any further step in achieving home loan. So, learn about your credit score by whatever way you feel is simple to you. There may be some tool or your loan statement from where you can get an idea of your credit score. Just do your research first before opting for a home loan. This will help you have a clear perception of your loan eligibility and accordingly you can take steps to get a loan for buying a home.

Things that Make Up for a Good Credit Score

In most cases, when you will learn your credit score, the resource that you will use to learn it will tell you the category you fall under (like whether you have an excellent, good, fair, poor, or bad credit score). Here is a guide for you:

  • Excellent: 750 and above
  • Good: 700-749
  • Fair: 640-699
  • Poor: 600-640
  • Bad: Below 600

Not happy with your credit score? Luckily, you are not stuck with it.

What Do You Need to Know About FHA Home Mortgage Loans?

Earlier, to get a home mortgage loan, you are required great income and credit score (this may be around 640 or higher to get approved). It is impossible for many buyers, especially the first-time home buyers with lower credit scores to qualify for the mortgage loans.

Later, FHA mortgage loans got introduced. FHA home mortgage loans were created by the Federal Housing Administration in 1934 to increase home ownership. By insuring home mortgage loans, the risks that lenders face has got greatly minimized. It has become much easier to qualify for this Government home loan than a conventional mortgage because of the lenient home loan requirements. 

The term “bad credit home loans” often refers to this type of mortgage.

With FHA home mortgage loans, there are much less risk associated with the home mortgage loan companies and they are more able to minimize their minimum requirements for a loan. So, no longer you need to have a 620 credit score to get your home mortgage loan approved. FHA home loans allow for poor credit scores as low as 500 with 10% down and 580 scores with 3.5% down.

How Compensating Factors for Bad Credit Score Helps?

Do you need a home loan but had a poor credit score? If yes, then you need to show some compensating factors that can help make up for the low credit score. You are also required to show that financial hardship is the reason you fell behind on your monthly bills and you have since recovered and have re-established credit score again. Generally, if you have a poor credit score, your home mortgage loan will go through a manual underwriting. However, these compensating factors may minimize the risk of the home mortgage loan companies and increase your odds of getting a home loan approved with a bad credit history.

Some of the Compensating Factors for low credit score include

  • Large down payment (10% down or more)
  • High income
  • Low debt-to-income ratio
  • No outstanding debt
  • A significant amount of time with existing employer
  • A large amount of cash reserves
  • Paying comparable rent payments

Know About Down-Payment Assistance and Grants

You might be able to qualify for down-payment assistance or Federal Grants. It can help you get a home mortgage loan despite of low credit score. So, search for the local state programs related to down-payment and Federal grants.

How Can VA Home Loans Help?

Check if you are eligible for a VA home mortgage loan. It has many advantages, including no money down and no mortgage insurance. The VA home loan doesn’t have a minimum credit score requirement but most home mortgage loan companies need a 620 or higher FICO score. Some VA home loan companies might also be able to work with a 580 credit score in some situations. So, with this type of loan, you have a chance to get your home mortgage approved with bad credit score.