What You Need to Know About Getting a Mortgage When You Have Bad Credit

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One of the most significant factors that will determine whether you will be approved by mortgage lenders for a home financing or loan is your credit score. If you have had some financial problems before that have affected your credit score rating, getting any kind of home loan will be hard. Many lenders will reject your application. However, if you know what to do and where to look, you can increase your chances of getting a home loan even with bad credit. Here are some things you should know.

Consider Making a Larger Down Payment

A poor credit rating means lenders risk more by financing your housing. To compensate for this and make yourself less risky to your potential lenders, increase your down payment if you have the money. Since bad credit means you pay more, especially on interests, a huge down payment can give you some leverage to negotiate your mortgage interest rate. If you don't have the money to make a huge amount of down payment, consider other assets you might have that you can liquidate. For instance, if you have a retirement account, it can be a good source of cash to make the down payment. However, make sure doing this won't result in any huge losses.

Think of a Co-Signer

Look for lenders who accept co-signers. A co-signer is simply someone whose income is higher than yours and whose credit is good and with whom you sign up for the loan. Having a co-signer can help you get favourable terms from lenders and can also increase your chances of being approved for the home loan. However, remember that you should only consider a co-signer if you are on the path to improving your credit rating and if you have a stable source of income. This is because missing payments will have adverse effects on both of your credit scores. Therefore, as a rule of the thumb, always co-sign for a loan that you can afford to repay yourself.

Make the Mortgage a Temporary Option

There's no denying that you will pay more to get a mortgage when you have poor credit ratings. Therefore, if you are being approved for the mortgage on bad credit, make it a temporary solution to your housing needs. Keep in mind that this does not mean getting short-term loans. Make an effort to improve your credit score by paying the mortgage as well as your debts and bills on time. Doing this will make it easy for you to refinance to better mortgage deals within a shorter period.

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21 April 2017

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