Your credit score will make or break your ability to purchase a home as well as dictate how much the loan will cost. That said, it isn’t necessarily true that if you have less-than-perfect credit you’ll be denied a mortgage
If your income is steady and you earn enough to make your monthly mortgage payments you may just be able to get around the bad credit problem
The Kris Lindahl Team with Kris Lindahl Real Estate works with lenders who help people like you get a home loan. With our network of lenders your chances of approval are much greater than if you go it alone.
Because they are riskier, bad credit mortgages, or “sub-prime” loans as they are known in the mortgage industry, carry a higher interest rate than a typical home loan. Lenders will look at your credit score, yes, but they’ll also evaluate the number of late payments that appear on your credit report and the amount of your down payment.
The mortgages that our lending partners have been able to grant to our clients have more reasonable rates than the typical out-of-control interest charged for sub-prime loans.
Your credit score is a three-digit number in the 300 to 850 range, with the higher numbers representing the best scores.
Fair Isaac Corporation is the largest and most widely used to compile credit scores, which is why the score is sometimes referred to as your FICO score. The company uses information from your credit reports from the so-called “big three” credit reporting agencies – TransUnion, Experian and Equifax -- when compiling your score.
When calculating your credit score, FICO looks at the following data:
- Age of your credit (older accounts are worth more)
- Length of Credit History – accounts for 15 percent of your FICO score.
- Payment History – this category accounts for 35 percent of your FICO score.
- Total Debt – this category makes up 30 percent of your score.
- New Credit – 10 percent
- Types of Credit (revolving, installment) – makes up 10 percent of your FICO score.
A common question is “What is considered a good score?”
It varies by lender but, typically, 750 and above is considered good and will get you the best rates and terms on a loan. If, on the other hand, your score is less than 620, you may be considered a sub-prime borrower.
Candidates for Bad Credit Mortgages
Our lender partners are in the best position to analyze your credit data and determine whether you qualify for a bad credit mortgage. The following, however, can be used as a rough guide:
- 620 or lower credit score
- Two 30-day late mortgage payments within the past year.
- One 60-day late payment on a mortgage in the preceding 12 months.
- Foreclosure within the past 24 months.
- Bankruptcy within the past 24 months.
- A high debt-to-income ratio.
Again, the only way to determine where you stand is by speaking with one of our lending partners. What we can tell you is that we’ve had clients with scores in the 500 range be approved for a mortgage.
If your dream is to own a home but you’re convinced you can’t get a loan because of bad credit, contact us. We may just be able to help your realize your dream.