How to get a home loan with bad credit must be something you should learn if you are going to apply a home loan while you have bad credit. As credit score is the most important thing considered by lender, you will be consider as the one at defaulting risk for the bad or low credit score. Even though obtaining home loan is more difficult for the foreclosures and the struggling economy, you still have a possibility to get qualified for the home loan by organizing your finances well.
Find Your Credit Score
First of all, you need to get your credit score. It is derived from the credit history and provided in three digits. It is the key factor to get the home loan and commonly used by lenders in the credit card applications. You can find to know the credit score from the credit card issuer or from your bank.
Understand How Someone is Qualified for Bad Credit Score
Generally, the minimal credit score for home loan approval is 620. Meanwhile, the highest credit score is about 850. However, such perfect credit score is not easy to get, especially for the first time home buyers. For those who have lower than 600 of credit score, you can apply certain loans that can approve 600-500 credit scores. The loans are such as Federal Housing Administration (FHA) loan or VA loan for the veterans. Besides the credit score, there are more factors considered by lenders for home loan application approvals. The current income, credit history, on time bills payment ability, current debt, etc. are also the how to get a home loan with bad credit approval factors.
Keep in Stable Income
The ability to pay monthly bill on time is the first consideration of the lenders when they get your application for the home loan. Besides, the stable income of you in the last two years will be also checked by the lenders. For those who are self-employed, it may be difficult to get mortgage approval whist you have low credit score. To get the lender approval, make sure you have strong income and stable yearly salary so that the lenders will approve the loan application easily.
Reduce Your Debt
It is about 30% of the credit score is sourced from the payment history. That is why the late payments of credit card or the student loan debt can affect the credit score much. In order to get home loan approval, try to reduce the debt by paying the student loan on time and always pay your credit card even in minimum amount. To reduce more debts, it is recommended to pay more than the minimum amount, if possible.
Adjust the Debt to Income Ratio
How to get a home loan with bad credit can also be done by adjusting your debt to your income ratio or your credit. It will improve your credit score fast and make the lenders approve the home loan application. You can revolving the line of credit or credit card debt to improve the score quickly. Besides, you also can consolidate your debt of credit cards so they can be in one place and lower the interest rate. Try to pay the credit card debt as soon as you can and pay minimally the least balance every month so that you can address the payment and then improve your credit score.
Get Ready to Get Higher Interest Rate
The higher risk of you for the bad or low credit score will make higher the interest rate of the home loan. So you may get the home loan approval in sub-prime payment. That is why it is better to make higher your credit score first before you get the home loan approval with no more need to know how to get a home loan with bad credit.