Low Credit Score? 3 Strategies For Qualifying For A Mortgage
After the recession, banks tightened lending regulations, which made it difficult, if not impossible, for people with low credit scores to secure a mortgage. Fortunately, times are changing, and people with poor to average credit scores are benefiting from the change. Overall, more people with low credit scores are being approved for mortgages now than in the recent past. If you have poor credit, you could be approved too. Following are three strategies for improving your odds of being approved for a mortgage even if you have a poor credit score.
Opt for Government-Insured Loan
Government-insured loans have always made it possible for people with lower credit scores to get financed. in 2015, borrowers had to have a FICO score of 640 or better to be approved. However, the new threshold is 580, a full 60 points less than just a year ago. If you're trying to get approved, you have a better chance of getting approved for a government-insured loan than you do for any other type of loan based on your credit score alone.
Look Good on Paper
Lenders are also looking at other factors besides your credit score. They want to know if you can afford a mortgage. If you haven't had any missed or late payments in the past year, they will take that into account. They also want to see that you've paid your rent faithfully, and it helps if that rent payment is close to the amount of the mortgage payment you will have. Also, you should have a sizable down payment. 3.5 percent is the minimum for FHA loan, and six months worth of expenses in a savings account.
Explain your Low Credit Score
If you have a low score, you may be able to get lenders to overlook it if you can explain why it is low. If you have had medical expenses, for example, you may be able to explain how an unexpected illness set you back. If you don't have any credit or a short credit history, you can explain that as well. It may help if you can show proof that you've paid non-reporting bills, such as your utilities, phone, etc., on time.
Lending requirements are getting less strict, which is great news for people with less-than-perfect credit and low credit scores. If you've been putting off buying a home until your credit score improves, look into today's guidelines. You might be surprised by what you can do with your credit score now under the new requirements.
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