Many of us believe that we can’t get a mortgage with a poor credit score. The truth is that you can get different types of loans even if you have poor credit. In the case of mortgage financing, various lenders have programs tailored specifically for borrowers with poor credit.
Besides the special programs, there are several ways to get mortgage loans with poor credit, including making a large down payment, improving your credit score, and working with a non-prime mortgage broker. Read on to learn more about getting a loan, even if you have poor credit.
What Is a Mortgage Broker?
A mortgage broker is a middleman between a homebuyer and a potential lender. Unlike a mortgage lender, a mortgage broker doesn’t offer home loans but instead helps you find a lender that best fits your financial situation.
Mortgage brokers are licensed and regulated financial professionals who do virtually all the legwork in finding mortgage financing. They ensure you have all the proper documentation, pull your credit history, verify your employment and income, apply for loans, and negotiate terms on your behalf.
Mortgage brokers have access to a wide selection of lenders, giving you more options to choose from than a direct lender. Once you find the right lender, your mortgage broker will liaise with the lender’s underwriting department, the closing agent, and your real estate agent to ensure the entire transaction runs smoothly until closing.
What Is a Non-Prime Mortgage?
A non-prime mortgage is specifically designed for borrowers with adverse credit, a score that is lower than average, or a low credit rating. Having a poor credit score undermines your chances of getting a home loan because lenders assume you’re more likely to default on your payments, putting their capital at risk.
However, what qualifies as a poor credit score for a mortgage depends on the type of loan you want. The different types of loans include:
● VA loans
● USDA loans
Mortgage lenders explore various factors when assessing your loan application. They will analyze your credit file comprehensively to determine what happened, when it happened, and how it affected your overall financial situation. This in-depth analysis helps lenders determine mortgage terms such as interest rates and preferred loan-to-value (LTV) ratios.
If your credit is unimpressive, the lender may decide to offer you a loan with a higher interest rate to mitigate risk. Alternatively, they may ask for a larger down payment as additional security or deny you a loan altogether.
If none of the options works for you, you might want to consider exploring offers from specialist providers who focus on borrowers with poor credit. These niche lenders are usually more flexible and often make lending decisions based on age, cause and severity of the credit issue, and its likelihood of recurring.
If you have a stable source of income, a healthy deposit, or other favorable factors, you may get a competitive deal from a poor credit mortgage provider. It’s worth noting that lenders usually don’t advertise their poor credit mortgage offerings, so you may need to work with an experienced mortgage broker to increase your chances of getting a great deal.
How to Get a Mortgage with Poor Credit?
You can have a hard time getting a mortgage with poor credit, but that doesn’t mean it’s impossible. Here are a few important tips to help you secure a mortgage, even if you have poor credit.
Compare Several Lenders
Some lenders offer better terms for financial loans than others. If you take the time to shop around and see what different lenders offer in terms of interest rates and other fees, you could save thousands of dollars on your mortgage.
Find a Co-signer
Another simple way to get a mortgage with poor credit is to ask a family member or friend with more favorable credit to co-sign your mortgage. Your application will have a higher chance of approval, thanks to the boost given by the co-signer’s credit.
However, the co-signer will be responsible for the entire debt repayment if you default. Missed or late payments will also impact the co-signer’s credit negatively.
Explore Different Types of Lenders
Traditional banks are not the only mortgage providers you can use. You can also get mortgage loans from online banks, non-bank lenders, credit unions, mortgage bankers, mortgage brokers, and community banks. Explore all these options, then go for the best deal for your needs.
Work on Improving Your Credit
If you have poor credit, you may take a few months to improve your credit before applying for a mortgage. Effective ways of improving your credit include:
- Making on-time payments
- Disputing credit report errors
- Paying down high-balance credit cards
Make a Bigger Down Payment
Some lenders may accept your mortgage application even if you have poor credit, provided you put a larger sum down. They will consider you less risky if you can afford a larger down payment.
Work with a Mortgage Broker
Mortgage brokers will often know which lenders would fit your specific situation. It’s best to work with an experienced non-prime mortgage broker. These specialist brokers work with numerous non-prime mortgage lenders, and they can help narrow down your choices to the right lender for your financial situation.
We hope you find this guide helpful if you are looking for a mortgage but have adverse credit. If you can’t find a good deal from traditional mortgage providers, consider looking for specialist poor credit mortgage lenders. Other practical ways of getting a loan with poor credit include finding a co-signer, improving your credit, and making a larger down payment.
Working with an experienced mortgage broker will make things easier for you and increase your chances of getting better terms on different types of loans.
Our mortgage broker team at Cornerstone Capital Financial Services, LLC has helped thousands of home buyers get competitive mortgage loans for nearly two decades. We can help you, too. Contact our friendly team today at (201) 514-5942.