As you know, your credit affects your ability to qualify for credit lines, loans, and mortgages. But, does this mean you cannot get a mortgage if you have bad credit? The answer is no. You can still get a mortgage if your credit is not great, but you may have fewer options, and the terms might not be as favorable. Here are several things to know if you have bad credit but want a mortgage.
There Are Options
With bad credit, there are three options you can pursue: FHA loans, VA loans, and USDA loans. These three mortgage programs may provide a way for you to buy a house with a mortgage — even if your credit is bad. Each type has credit score requirements, though, that you must meet.
For example, to get a USDA loan, your score must be at least 640. VA loans may be available for scores slightly lower than this. FHA loans have the lowest credit score requirements of all. They typically require a score of at least 580 for the lowest down payment option. If you are not sure where you rank in this, look up your score. You can do this online through the credit bureaus or by downloading an app on your phone.
Your Down Payment Matters
You can qualify for several loan programs without perfect credit, but other factors can affect your ability to get approved. One of these is the down payment you offer. A down payment is the money you give the lender for the purchase of the house. When you put money down, you are investing in the home. People who put more money down on homes have more risks with the deals. They will work harder to keep their homes because they had to put their own money down.
Lenders also view down payment amounts when evaluating loan applications. If you can put money down, you may have a better chance of getting approved. If you have little money to use for a down payment, your chances might decrease.
You May Not Get a Great Interest Rate
The last thing to know is that you might not qualify for a great interest rate if you have bad credit. Lenders base rates on creditworthiness. A person with bad credit is not creditworthy, so he or she will pay more in interest. You can always refinance the loan in a few years, though, which may help you get a better rate.
Would you like to find out if you qualify for a home mortgage? If so, call a lender today to learn more about the process and eligibility guidelines.
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