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Mortgage Basics

How to Get a Mortgage with Poor or Bad Credit

May 27, 2020
If your credit score is less than perfect, check out these tips for finding a mortgage loan that suits your needs and improving your score.

A large part of qualifying for a home loan is your credit score. Your score helps lenders determine what loan programs you’re eligible for and what kind of interest rate you can get. Basically, your credit score helps lenders determine your likeliness to pay back your mortgage loan.

How does it do that? Well, your credit score is based on a variety of factors, such as payment history, total amount owed, types of credit in use, and more. All these things are good indicators of your ability to pay your mortgage.

That said (generally speaking), the higher your credit score, the more loan programs will be available to you. You’ll also likely get a better interest rate – because you’re seen as a “less risky” borrower.

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Source: Experian

This might sound a little discouraging if your credit score is lower than you’d like it to be. However, this is not the end-all-be-all, and there are ways you can get a mortgage with a poor credit score. The two most common solutions are: work to improve your score and/or explore your mortgage loan program options. 

How to Improve your Credit Score

Check Your Credit Score

First things first: if you’re going to work on improving your credit score, you need to know what it is. It might be helpful to do a deep dive and familiarize yourself with your entire credit portfolio. Look into things like:

  • What your credit score is
  • Lines of credit you currently have open
  • Types of credit used
  • How much debt you currently have

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Pay Your Bills on Time

Make it a priority to always pay your bills on time. This is one of the leading factors that affects your credit score, so it’s an important one to stick with. If you have the option to enroll in auto-pay for your credit cards or loans, it can help keep you on track. Plus, you’ll often have the option to set the scheduled payment amount (minimum due, total balance, or another amount of your choosing), so you still have some flexibility.

Pay Off Your Debt

Another surefire way to increase your credit score is to decrease the amount of debt you owe. There are many popular strategies for paying down debt, but it all boils down to one basic premise: be aggressive and put the extra money you have toward your debts.

Consult a Credit Counselor

We’re mortgage experts here at Waterstone Mortgage, but when it comes to credit issues there are definitely professionals who can give you more in-depth advice. If you’re struggling, find a local loan professional in your area and one of our top-notch loan originators would be happy to refer you to a credit repair specialist.

Find a Mortgage Loan with Flexible Credit Requirements

There are many home loan programs out there that have flexible credit requirements. Unfortunately, this isn’t always the magic answer – you may still have to take some of the above steps to improve your credit (a Waterstone Mortgage loan professional can explain each program more in depth if you’re curious whether or not you qualify).

Some of the loan programs we offer for those with lower credit scores include:

  • FHA – Backed by the Federal Housing Association, FHA loans are often a great option for those with less-than-perfect credit or a low down payment amount.
  • VA – VA loans are exclusive to veterans and their spouses. They do not require a down payment.
  • USDA – Think USDA loans are just for farmers? Think again! Many homes in rural or even suburban areas still qualify for USDA loans. Plus, no down payment is required.

While these are our most popular low-credit mortgage options, this list is certainly not exhaustive. Find a local home loan expert in your area to learn more about your options or get pre-approved today.