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How to Get a Mortgage with a Bad Credit

Olivia James
How to Get a Mortgage with a Bad Credit

You have read around about how a good credit score is necessary to get a mortgage. What happens when you have bad credit and are in dire need of a mortgage?

Unknown to many, you can still get a mortgage with bad credit. However, you will have to pay a larger deposit and higher interest rates than someone with good credit. Learn how to get a mortgage with bad credit below;

What is a Bad Credit Mortgage?

A bad credit mortgage is a home loan similar to a regular mortgage. However, it comes with low borrowing limits, high interest rates, and deposits. All the characteristics are because a bad credit score causes a mortgage lender to view you as high risk.

Therefore, to reduce the chances of the lender losing the money they lend you, they will allow you to borrow a lesser amount compared to someone with good credit. You will also need a larger deposit of between 20 and 25% of the home value compared to the 5-10% paid by people with good credit scores.

How to Apply for Mortgage with Bad Credit

Follow the steps below to apply for a mortgage if you have bad credit;

1)- Do Your Research and Identify Bad Credit Mortgage Lenders in Your Area

You should do extensive research since bad credit will mean paying a higher deposit and monthly installments due to high interest. Shop around to identify a good offer and find a lender with enticing financing terms.

Some mortgage lenders specifically offer their services for people with bad credit. Identify these lenders in your area, ask for quotations and compare them. Shopping around can help save hundreds of dollars due to the difference in interest rates.

2)- Shop for First-Time Buyers Mortgage Lenders and Find a Co-Signer

There are first-time homebuyers programs that help negotiate fair deals for people looking to own homes for the first time. However, you can also qualify for the program provided you have not bought any property in the last three years. 

First-time programs have subsidized rates which can help you get fair deals. You can also try to find a cosigner if you have bad credit. Co-signers help boost your application by admitting to being responsible when you default on your monthly repayments. Thus, it gives lenders more assurance in your committed repayment.

3)- Apply for Government-Backed Loans

When you have bad credit, consider getting a government-backed mortgage loan. Although mortgage lenders underwrite and issue these loans, they are guaranteed by the government. 

Therefore, they are less risky for the lender, and they won’t need unreasonably high credit score requirements. Examples of government-backed loans include FHA, USDA, and VA. The FHA loan, which is the most common, needs a low credit score of 580 and a 10% down payment. 

Despite these guidelines being the floor, recently, mortgage lenders have raised their standards for these loans. Therefore, consult with your lender for more accurate details.

Don’t let a Bad Credit Score Get In The Way of Your Dreams

Undoubtedly, a bad credit score can affect the chances of getting your mortgage approved. Luckily, you can get your mortgage loan approved by following the steps above. However, you will need to pay a larger down payment and work with higher interest rates. 

If you have more questions or need help, We are a leading mortgage brokerage firm operating in Newark, serving the lending needs of real estate professionals, builders, and individual homebuyers. Contact us today to book your consultation.

Olivia James
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