4 Smart Strategies on Acquiring a Home Mortgage Program If You Have Bad Credit

Summary: If you are struggling with a bad credit score, here are a few smart strategies that will help you acquire a home mortgage program.

Acquiring a home loan with a bad credit history has become a solid challenge nowadays. The real estate market seems to be hopeless for the ones who are low on their credit scores. It has been proved in a recent study that about 20-21% of Americans have a credit score below 600. In fact, the average credit score 675 is also considered to be quite low in order to qualify for the best conventional mortgage rates.
However, the good news is that it might be difficult to avail a home loan with bad credit but it is certainly not impossible. There are a number of options for those aspiring home buyers suffering from low FICO scores which can turn their dream of possessing a house of their own into a reality. The question is simply how you can do so.

How to Get a Home with a Poor Credit History?

Since getting a mortgage with a bad credit usually requires a bit more effort than for the people who have an excellent credit score, you will have to resort to certain measures which will ultimately make the process of getting the mortgage loan smoothly at the best interest rates in Houston. Here, we have a few of them enlisted. Take a look.

1. Gaining an Understanding of Your Credit History

One of the key steps that help in understanding which is the right way to acquire a home loan when you have a low credit score situation is to understand your credit. You should begin by looking for a mortgage lender whom you can trust for guiding you through the entire home buying procedure. The people who are struggling with a poor credit history must realize that the big banks will not be in their favor and always stick to the conventional loan options where they will not qualify. Mortgage lenders, credit unions, or the community banks have a reputation for assisting such loan aspirants. These institutions not only consider your minimum credit score requirement but also the cash flow, income, assets, and the history of repaying the former loans. Gaining this knowledge about the financial status will provide the important insights to the borrower about how much one can afford, how much can be paid as fees, and what the rate of interest can be. It will also help you decide on your next steps.\

2. Make Huge Amounts of Down Payment

Down payment can be an assurance for the lender that the borrower will be repaying the loan amount. Therefore, this can be one of the crucial ways in which you can acquire a mortgage program. Generally, lenders take three factors into account for approving the mortgage application- the debt to income ratio, the credit records, or the Loan-To-Value i.e. the loan to value ratio. If you can pay a large amount of down payment, then this will improve your Loan-To-Value and make it easy for you to acquire the loan. It is also quite a lucrative proposition for the mortgage lenders if you down a huge amount of money as the down payment because the borrowed amount will be less then. And for you, the equity of your home will also be increasing. The source of this down payment can be your own savings or in some cases, if the loan you are opting for permits, the down payment can also be gifts from family members or friends. You must remember that the lender must always know the source of your down payment. So, this is one of the fruitful ways to combat the low credit score issue in terms of mortgage loans.

3. Improve Your Credit Score

In order to acquire the home loan for poor credit history, the simplest solution would be to improve the credit score. This is the best way to get your loan approved and that too, at better terms. There are several ways of doing so-

• Correct the Credit Report Errors
Sometimes it has been noticed that despite paying their bills on time and having no credit card issues, yet there are loan aspirants who have a low credit score. However, this could be a mistake in your credit report. You should check these errors and review the credit report from relevant authorities and correct these mistakes so that it does not have a negative impact on your credit record.

• Make Debt Payments on Time
Next, you should make it a point that you settle your outstanding payments on time. Often, you will realize that a low credit score is the outcome of your payment habits. The payment record will play a huge role in determining your credit score. Along with the FICO score, the payment history will comprise about 35% of the score. So, try to nurture a habit of paying the debts on time in order to improve your credit score as quickly as possible.

• Keep Your Balance Amount Low
The next most important thing that you should do is keep your balance low. The less you owe as opposed to what can be borrowed, the higher your credit score will be. So, always try to pay off your balances before the closing date of the credit card settlement. If you cannot pay the whole amount before the statement's closing date, at least try to keep the amount below 30% of the credit amount available. And keeping your balance under 10% of the total credit available can further improve the credit score.

• Be Careful about New Credit
Another thing that you must do is be careful about the new credit. You should know that when you open a new credit card or another account, your credit score is likely to drop. If you want to improve the credit score rapidly, you need to be careful about these new accounts or cards. Also, be cautious about closing credit cards that you have paid off as it can also decrease the credit score. Closing a credit card will drop your available credit and limit your power of borrowing.

4. Avail the Government-Backed Loan Programs

Apart from these measures, what you can do to avail a home mortgage program is opt for the government-backed loan programs. There are several kinds of first-time home buyer programs in Houston too which can be availed in such a situation. These loan programs are flexible in terms of their eligibility conditions and not require a hefty down payment at all times.  

Some of these have been enlisted below:

• FHA Loans
A Federal Housing Administration or FHA loan is a loan that is availed from an independent lender but is backed by the FHA. These are easier to qualify for poor credit because of the low credit score requirement and low down payment.

• VA Home Loans
VA home loans are home loans for the veterans. You can be eligible for this type of loan through the Department of Veterans Affairs if you are an active or a retired member of the US Military. A VA loan is availed through a private lender but the loan is insured by the VA, thereby decreasing the risk of the lender. Low down payment, no private mortgage insurance, and early fees payments are some of the major benefits of this loan program.

If you need assistance in implementing these measures or suggestions, then you can also resort to a real estate lending site which also guides you and advises you on how to choose the right home loan program with a bad credit.