Having bad credit is not the end of the world and it’s not impossible to get a loan. Generally, credit scores below 600 are considered sub-prime and the lower your credit score, the harder it will be for you to secure a mortgage. A mortgage is a secured loan, meaning you put up your house as collateral. Therefore, if you fail to pay off your loan, the lender has the right to foreclose on your property. So as we said before, it may be more difficult but not impossible to get a mortgage if you have bad credit. Statistically speaking, those with a lower credit score are more likely to default on their loans. To offset the risk, lenders usually charge you a higher interest rate and limit the amount of credit you can borrow (because the higher your interest rate, the higher your payments, which means you have less ability to pay back a higher loan amount). Lenders may also charge higher late payment fees.

What Are Your Options?

If you have bad credit and want to get a mortgage, here’s what you can do:

Apply for the Mortgage Yourself

If you don’t know what your credit score is, you can talk to a Quicken Loans home loan expert. They will be able to pull a copy of your credit report, and let you know if you qualify or not. Quicken Loans offers the Fresh Start loanfor those with less-than-perfect credit.

Get a Co-Signer

You can sometimes get a cheaper rate if you can get someone who has better credit to co-sign your loan. The drawback to this is that the co-signer is also responsible for repayment of the loan and may also limit their ability to take out loans in the future since the loan they co-sign is factored into their debt ratio.

Improve Your Credit Before You Get a Loan

If you have the time and can wait on getting a mortgage, then you should think about trying to improve your credit score — the higher your score, the cheaper the interest rate; thus the lower your monthly payments. It may also be prudent to seek the advice of a good credit counselor.

Get Someone to Get the Mortgage for You

If your credit is so low that no one will agree to financing you, see if you can convince someone with better credit — perhaps a family member or spouse — to take out a mortgage for you. Obviously, this can have serious consequences on any relationship, so be sure that the person you ask is someone very close to you — someone whom you can trust to handle it. You could also pay cash by selling your home and using the profits from the home sale to pay for the new, less expensive home, for instance. But you shouldn’t forego the chance to re-establish your credit by proving yourself a worthy borrower.  

Getting a mortgage may not be as impossible as you think with a low credit score. You’ll likely pay more with higher interest rates and you may not be able to get as large a loan amount as someone with good credit, but you still have options, as long as you’re not afraid to ask for some help. Talk to a Quicken Loans home loan expert today by calling (800) 963-2177.

Courtesy of ARA Content