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Getting a Mortgage with a Bad Credit Score

In Mortgage Rates | on March, 04, 2014 | by | 0 Comments
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Borrowing money from banks and other types of financial institutions has become considerably harder since the financial crash, with qualifying requirements tougher than they have ever been before. Gone are the days when you could get a 100% mortgage wherever you went; these are like dinosaurs now, they don’t exist, they’re extinct. Nowadays even if you’re in a position to put down a large deposit and you have a secure job that pays a respectable salary, you still might be turned down. You can’t exactly blame banks and building societies for being extremely cautious though, as no-one wants a repeat of what happened in 2008! Nevertheless, if you do have a bad credit rating you might be feeling that purchasing property is now nothing but a pipedream, unless you happen to win the lottery that is. But fear not, it is still possible to get a mortgage and buy real estate in Colorado even if you do have a bad credit rating, and during this article we are going to provide you with a few tips to help you do so.

A Bad Credit Rating Doesn’t Have to Mean the End of Your Home Dreams

get a mortgage with bad creditIt’s actually somewhat of a myth that a bad credit rating means you have zero chance of being approved for a mortgage, but it does mean that your choices will be more limited and that you will likely be offered less favorable repayment conditions. If you are interested in purchasing a home, before you make contact with a real estate agent in Denver, take some time to explore your options and follow the tips we have outlined for you below.

Look at Non-Conventional Loans

Depending on how low your credit score actually is, terms offered by conventional lenders may be so unfavorable that you can’t contemplate committing to such a loan. We would advise you to spend more time researching non-conventional lenders instead, such as the Federal Housing Administration (FHA), the U.S Department of Agriculture and the U.S Department of Veterans Affairs. The minimum credit score required to be considered for a mortgage loan by these lenders is generally much lower than those set by more conventional lenders (FICO score of 580 compared to 650+), and if you have the cash available to put a significant deposit down, the qualifying requirements are often further “relaxed.” It’s also worth making some enquiries with your bank, and other banks in the local area, as to whether they offer lending programs tailored to your situation.

Save for a Bigger Deposit

You have to accept that a lower credit rating means you are “less trustworthy” in the eyes of financial lenders. It’s nothing personal; you just represent a bigger risk for them. However, one way you can swing the odds back in your favor is to offer a larger deposit. The more equity you have in your home, the lower the perceived risk and the more likely you are to get approved, although don’t expect this to be the case with all of the lenders that you contact. Smaller banks and building societies are more likely to be receptive to this “tactic” since their lending requirements are often less rigid than those enforced by larger lenders.

Improve Your Credit Score

The obvious solution to your problem is to confront it head on and take steps to improve your credit score; it’s often notas hard as you think it will be. There are a number of things that you need to do, including:

  • Never Miss Minimum Balance Payments – Failing to make these payments can really harm your credit rating, so make sure you always pay promptly. In the future, when using your credit card, make sure you will definitely be able to make the minimum re-payment next month, otherwise don’t use it.
  • Increase Efforts to Reduce Debt – If you have a bad credit score, the chances are high that you have outstanding balances on one or several lines of credit; take action and reduce your debt. Rather than spending money on treating yourself, allocate more of your monthly salary to paying money back, even if it’s just a small amount extra each month.
  • Don’t Max Out Your Credit Lines – Credit is there if you really need it, but if you still have a small amount left before you hit your limit, it doesn’t mean you have to use it. When assessing your application, mortgage lenders will look at the lines of credit you have open, how much you have used and how much you still have available; exceeding limits definitely doesn’t look good.

Whether you have an excellent credit rating or a credit rating you would rather others didn’t see, when looking for a mortgage it’s important to get information on as many deals as you possibly can, that way you have a better chance of getting favorable mortgage conditions, leaving you free to pursue the Denver real estate listings that interest you.

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