The first thing to consider before trying to apply for a mortgage if you have bad credit is look at your options. So what can you do if you have bad credit? First, know that if you have bad credit and you want to apply for a mortgage, it’s important to do whatever you can to repair your credit before you apply.
A second important point is that it can take six months to a year to rebuild bad credit enough that it will positively affect your ability to get a mortgage. So it’s also vital that you’re willing to be patient, and take the time to repair your credit before applying. Repairing bad credit has two main steps: first, check your credit report for errors, and second, repairing any damage done. To check your credit score for errors, simply obtain a copy of your report from one of the three main credit-reporting agencies – Equifax, Experian and TransUnion. Examine the report thoroughly, and check for errors or out-of-date information.
To fix the error, call the creditor involved and explain why you think the item should be removed from your report. Make sure the creditor agrees to send you a letter verifying that the item was removed, to provide proof for the credit bureau. Next, it’s time to start repairing your credit score. The most effective way to do this is simply to pay your bills on time, and keep your debt total low, while maintaining a small amount of available credit. Lenders like to see a fairly small amount of available credit, with a wide gap between the amount of credit you have, and the amount you actually use.
Even if you’ve taken steps to repair your bad credit, it might not be good enough for lenders to consider you an excellent risk. If your credit is still below 700, you may find you have to do some serious shopping around to find a lender willing to accept your application. If you’re able to make a larger down-payment, this can help off-set the negative effects of a lower credit score.
Lower than 620, you’ll probably be limited to what are known as sub-prime lenders. These offer loans to people with bad credit and other issues, but the loans typically have higher interest rates. The problem here is that if your credit is bad due to tight finances, you’re less likely to be able to afford the higher repayments that come with the higher interest rate. If you’re in a situation where a sub-prime mortgage is your only option, it’s very wise to stop and think about whether it might be a better option to wait until your credit is higher.
