Are you worried that your poor credit score will stop you from getting a suitable home loan? Yes, it’s true to some extent. Though you cannot enjoy favorable terms and conditions on your mortgage if you have a bad score, yet you can definitely buy a home with poor credit. All you have to do is search for loans that you can take out even with your poor credit record.
Required credit score for a favorable mortgage
You need to have a minimum credit score of 720 in order to get a suitable mortgage loan. It is regarded as an ideal score for taking out a mortgage with favorable terms and conditions. However, you will have to face a lot of trouble to obtain home loans if your score is less than 600.
Lenders usually consider your creditworthiness before offering you a mortgage. Therefore, if your score is below 600, then the lenders will consider that you’ve much higher chance of defaulting on your loan.
How to get home loans with poor credit
Having a poor credit doesn’t mean that you’ll never be able to secure a mortgage. Go through the following lines to know how you can obtain a mortgage with poor credit history.
- Debt to income ratio: You can buy a home with poor credit if your debt to income ratio is 28/36 or low. The number 28 signifies your front end ratio (% of your income utilized in paying housing costs) and 36 signifies your back end ratio (% of your income utilized in paying your recurring debts). It will help you to get a mortgage if your poor credit score is the result of your bad repayment history.
- Increased down payment: The lender may require higher down payment to offer home loan in order to compensate the loss if you default on your loan repayment. If you don’t have enough cash to make the required down payment, then you can borrow the amount from your friends and family members.
- Shop online and compare mortgage rates: It is advisable that you shop for mortgage with poor credit and compare the terms and rates so that you get the best deal on your home loan.
Loans that you can obtain with poor credit
It is always better to wait for sometime and increase your credit score. It is a better alternative to buying a home with poor credit. However, if you want to secure a mortgage even with a bad credit record, then you can consider the following options.
- FHA loan: Your score need to be 620 or above in order to obtain an FHA loan. Apart from this, you’ll have to wait for a minimum of 2 years after foreclosure in order to get an FHA loan with about 4% down payment.
- Conforming Loan: If you want to get a conforming loan, then you’ll have to wait for a minimum of 4 years after filing foreclosure or bankruptcy.
- Hard money lender: You can obtain mortgage from hard money lenders but you’ll have to pay about (20-30) % down payment in order to secure a home loan. However, you’ll have to wait for minimum 6 months if you’ve filed a bankruptcy or foreclosure.
- Sub-prime lender: Sum-prime lenders offer mortgage with poor credit record but they’re not offering 100% financed loans in present times.
Before looking for available options to buy a home with poor credit, you should check whether or not you’ve bad credit score. Instead of assuming that you have a poor credit record, check your credit report to know your exact score. It’ll help you to shop for your mortgage in a much better way.
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