What to do when your credit score is too low for a mortgage

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If you’re preparing to buy a home, you probably know that your credit score is  important. Maybe you’ve already been turned down for a mortgage because of a low  credit score. Or maybe you’ve recently pulled your credit report, only to  realize that your credit is worse than you expected.

Don’t give up on buying a home yet! There are plenty of places to turn to  if  your credit is too low to get a conventional mortgage. But first, you should  figure out what lenders expect of your credit score, since you might be surprised  to find that you can indeed buy a home with your current credit score.

What do conventional lenders expect?

Lending requirements vary from one lender to the next, but they’ve generally  become more strict since the subprime mortgage lending crisis in 2008. As a rule  of thumb, though, you’ll need a credit score of about 650-700 to get a conventional  mortgage – and that’s on the low end.

Remember, the lower your credit score, the higher your mortgage’s interest  rate is likely to be. This can have a dramatic effect on how much you pay for your home over  time. So if you’re sitting on the mid-to-low end of the credit spectrum, you may  want to look into some of these options, even if you qualify for a conventional  mortgage.

Put More Money Down

Mortgage lenders look at a host of factors when deciding whether or not to  lend you money. One of those factors is your credit score. But another factor is  your down payment.

With some lenders, you may be able to offset a weak credit score with  a higher down payment. With a bigger down  payment, you’ll have more equity in your home, which means the lender takes less  of a risk when lending to you.

If you’ve got a substantial amount of money in savings, but still have a  fairly low credit score, consider applying for a mortgage with a smaller bank or  credit union. Often, these smaller entities operate under more flexible lending  guidelines, so you can talk to a Mortgage broker about your situation and maybe get  a favorable result.

Research Non-Conventional Loans

Another option if you have a low credit score (and especially if you combine  a low credit score and a small down payment) is to look into non-conventional  loans. Non-conventional or non-conforming loans, they often have less stringent lending requirements. They can be found using the help of a mortgage broker.

For instance, you may be able to get a  mortgage with a credit score of just  580, as long as you have a  higher down payment of 10  percent. Depending on lenders.

One other option is to talk with your mortgage broker in your area about specialized lending  programs. Some banks/ trust/ finance companies offer programs for landed-immigrant who have not yet establish a credit history, products for self-employed with lower income, lower-credit homebuyers,  which could fit your situation/  credit restrictions enough for you to qualify.

Work With a Mortgage Broker

Find a mortgage broker who will offer counseling to future homebuyers who need help raising their credit  scores or navigating the homebuying process. It may take some time,  but with the help of a mortgage broker, you can learn which steps  to take to raise your credit score and apply for a home loan.

Get Your Credit Score Up

You could also simply take the time to bootstrap yourself into a better  credit score. Raising your score isn’t complicated, but it does take time,  discipline and hard work. These steps can help get your credit score up so that  you can qualify for a mortgage:

1. Correct any errors on your report, especially late payments or collections  accounts that aren’t recorded properly.

2. Make all your payments on time. Late payments are the No. 1 way to ding  your credit score.

3. Pay down revolving debt like credit cards. A high debt-to-credit ratio is  another surefire way to lower your score.

4. Wait it out. As long as you’re paying down debt and making payments on  time, your credit score will eventually rise on its own.

Even if you decide to apply for a non-conventional loan or put more money  down on your home, these are good credit health habits to start for a  lifetime.




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About Sky Financial

We incorporated The Mortgage Centre-Sky Financial Corp. in August 1992 in Edmonton Alberta. Furthermore we opened offices in Fort McMurray, Cold Lake, Grande Prairie, Red Deer, Stettler, Saskatoon, Moose Jaw and Prince George BC.

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