Don’t Let Bad Credit Make You Homeless: 8 Ways to Get a Housing Loan
Over 43 million Americans have a poor credit score. When this determines whether or not you can get a home loan or rent an apartment, you may be struggling to find a housing option if you’re part of this statistic.
Luckily, there are ways you can secure a home loan with bad credit. However, it may take some time, so be sure you start sooner rather than later.
Do you want to know what we’re talking about? Keep reading to learn 8 ways you can get a home loan even if you have bad credit.
1. Improve Your Credit Score
The good thing about credit scores is that you can control whether they go up or down. They’re constantly fluctuating and shouldn’t be seen as a number that’s set in stone.
Of course, improving your credit score is often easier said than done. But even if you can boost it by 20 points or so, this may help you get a loan and save on interest rates.
But improving your credit score can be a lengthy process, so you should start at least three months before you plan to apply for a loan.
The first thing you can do is to examine your credit report. Look for any errors that may be hurting your score and request a correction to be made.
Once those mistakes are corrected, it’s just a matter of displaying smart credit card behavior. Make sure you’re paying your bills on time, don’t apply for a new card, and keep your credit utilization below 30%.
2. Increase Your Down Payment
For many home buyers, saving up for a down payment is the hardest part. But if you have a nice chunk of change in the bank, you can use this to your advantage.
Lenders just want to see that you’re not a risk. By offering a large down payment, your risk level decreases, and they may be more comfortable approving your loan.
Of course, having big down payment also means you’ll need a smaller loan, which may be easier to get approved than a larger one. You may even snag lower interest rates, so you’ll save money over time.
3. Have a Nice Cash Reserve
While having that big down-payment is a plus, you don’t want to empty your savings to do this.
Showing lenders that you have a decent cash reserve can also lower your risk level because they’ll see you’re able to pay for any unexpected repairs or replacements your new home may need.
4. Pay Down Debt
Is your credit score suffering because you’re swimming in debt? Unfortunately, it’ll also make lenders see you as a risk, so they’ll be less likely to approve a home loan.
If you’re in this situation, take an afternoon to organize your debts. Start by paying off the debt with the highest interest rate first, as this will cost you the most money over time. Try to pay over the minimum amount on this debt while still paying the minimum on your other debts, if possible.
Depending on how much debt you have and how much money you can put towards paying it off, this could take years to accomplish. You may not be debt free when you apply for a loan, but the lower your debt is, the better.
5. Show Your Rent and Work History
Have you been consistently paying your rent on time for at least a year? If you can verify this, you may have an easier time getting approved for a loan.
Lenders like seeing proof that you’re able to keep up with monthly payments, and paying your rent on time is a great example of this!
Having a steady, long-term employment history is also a good sign. This shows lenders that you have a stable stream of income coming in. Of course, it also helps if you hold a good-paying job.
6. Find a Cosigner
So you paid down some debt, have a nice cash reserve, and produced your rent and work history, but you’re still having trouble getting a loan. Now what?
Finding a cosigner can make all the difference, especially if their credit score and financial situation are good. If you can’t pay your mortgage, the lender will be able to hold your cosigner financially responsible for the payments, making you less of a risk.
Ask a trusted friend or family member if they’d be willing to cosign your home loan. But it’s important to only do this if you know you’ll be able to make your mortgage payments. The last thing you want is to put your loved one in a tough financial situation because they’re now responsible for your mortgage payment on top of their own.
7. Look Online
Don’t feel like you’re limited to the banks and credit unions in your local area. Oftentimes they have strict guidelines for who gets loans, so this could be one of the hardest routes to take. Nevertheless, it’s worth a shot to see if you can get approved and what interest rates they’d be willing to give you.
Your next step will be to look online. There are tons of sites that offer loans for those with bad credit or offer services that help you search through tons of online lenders to find the best one. If you want to learn more about this method, read this!
8. Apply for an FHA Home Loan
The Federal Housing Administration (FHA) has been offering government home loans for decades in an attempt to boost home ownership in the country.
In order to do this, they decided to make it easier for those with poor credit to get a home. As a result, the requirements to get an FHA loan is often more lenient than those at banks or credit unions.
How to Get a Home Loan with Bad Credit
Getting a mortgage loan when your credit is less-than-stellar isn’t easy, but it can be done. From having a big down payment to getting an online loan, there are many ways you can get a home loan with bad credit.
Make sure you’re informed before signing on the dotted line. Learn more about the effect of increasing mortgages on homeowners.