Can You Get a Mortgage With Bad Credit?

There is good news and bad news about getting a mortgage with bad credit. The good news is that it is possible to get a mortgage even if your credit history is bad. There are many lenders, particularly online, who handle home loans for people with poor credit. The bad news is that you’ll pay more in interest and other charges because of your impaired credit history. Generally, the lower your credit score, the higher your interest charges.

Mortgages with Bad Credit: Good Ideas

Despite the challenges, getting a mortgage, even if your credit is bad, is still a good idea for several reasons:

• You’ll have a home of your own.
• By paying the mortgage well, you will repair your credit report.
• You can probably refinance for a lower rate in a few years, assuming your credit history improves. Remember, bad credit history items stay in your report only for a maximum of seven years.

Still interested? Good. Let’s look at what you should do to get that mortgage.

1. Find out how bad your credit really is, by getting a tri-merged credit report.

A tri-merged credit report will contain information from the three major credit reporting agencies (CRA): Equifax, Experian and Trans Union. A credit report includes personal identifying data and a history of what credit you have had and how well or poorly you repaid it. It is important to get this 3-in-1 report because the three agencies may not have the same information.

Of course, the first thing the bank, credit union or mortgage lender will ask is “Do you have good credit?” Of course you will tell the truth (because the lender will find out anyway) and admit that you’ve had some trouble in the past. The lender will probably pull a tri-merged credit report. Lenders use this information to determine whether or not they will approve your credit application. If you’ve seen the report, you’ll be prepared to answer any questions that arise.

2. Review your credit report carefully.

When reviewing your credit report, look for accounts that are not yours, accounts that should be closed, accounts that are reported delinquent, etc. If there are any inaccuracies, you must contact the credit bureau(s) directly either by mail, phone or online (see information below). By law, the reporting companies must correct the errors when contacted by the credit reporting agency.

• Equifax Information Services: www.econsumerequifax.com | 1-800-685-1111
• Experian: www.experian.com | 1-888-397-3742
• Trans Union Corporation: www.transunion.com | 1-800-916-8800

3. Work to improve your credit.

Here are some steps you can take:

• Apply for a small amount of credit at a department store, bank or credit union. Repaying this credit well will show you have improved your bad credit habits.
• Get a co-signer for a loan or credit card. The lender feels more secure because it has another person to turn to if you default.
• Be sure to pay your bills on or before they are due. Again, it shows your good intentions.
• Pay down some debt. Lenders will consider how much of your monthly income must go to repaying debt that you already have. Too much debt is bad.
• Do not apply for any credit other than the mortgage. Too many inquiries from potential creditors make mortgage lenders nervous.

Research lenders to find one that is understanding of applicants with credit problems.

Check with your own bank or credit union first. Ask your realtor’s advice. Look in newspapers, magazines, and online. Lenders each have their own underwriting requirements and some are more lenient than others. You can find one that will work with you to get a mortgage.

You can get a mortgage with bad credit. It takes time, thought and work. Initially, your mortgage interest rate will probably be higher than to someone with good credit. But as you slowly repair your bad credit, credit score will improve. In the future lower interest rates will be available to you. You have to improve your credit somehow. Homeownership and a good repayment record on your mortgage will help make your bad credit history history.