A low credit score makes it tougher to get approval for a home loan from a lender. And if by chance, your loan is approved, the interest rates will be sky-high. So, if you have a low credit score, it will not be a surprise if you have stopped thinking about purchasing a house. But don’t give up now, as it is still possible to get a home loan from lenders with a bad credit score.
Are you wondering how it will be possible to get home loans from mortgage lenders for low credit scores? Well, there are several strategies that you can use for this. To help you, here we have put together a few of them.
Lower your DTI
If you have a bad credit score and you want to get a home loan, then one of the crucial things that you can do is to lower your debt-to-income ratio or DTI. This figure will help the lender to know how much of your income goes to monthly debt obligations, like car loan payments, credit card, and many more. The lower your DTI, the better it will be, as you will have more income available to handle a mortgage payment. You can lower your DTI by either increasing your income or by paying off some debt or by both. Generally, home lenders require a DTI of 43 percent or less than that, but 36 percent is considered to be ideal. So, if you have a bad credit score, a low DTI ratio can make you a more attractive borrower.
Bigger down payment
As a low credit score is a sign that you are a riskier borrower to the lenders, you can try to offset some of that risk and increase your chances of getting approved for the home loan. And one way to do is to offer a bigger down payment. When you offer a bigger down payment, you will need to borrow less money for the purchase and have more equity in the home – it will help to make you more attractive to lenders.
Add a co-signer
If you have a family member or a close friend with a good credit score, you can ask him or her to co-sign the loan. A co-signer essentially lets you use his or her good credit to get your home loan approved. When you come up with a co-signer with a good credit score, the lender will trust you and approve the loan. But you should be careful while taking this decision. It is because though the mortgage loan would be in your name, your co-signer will be equally responsible to make the payment. So, if you missed a mortgage payment, his or her credit would take a hit.
Bad credit can’t prevent you from getting a loan from a mortgage lender when you use proper strategies for this. As you are now familiar with the things to do, wait no more, and opt for a mortgage lender today.
Author Bio: Joan Gallardo, a Senior Loan Officer, with +20 years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.