Home ownership is a common goal for many people. There is a renewed sense of pride that comes with owning a home or property. Unfortunately, there are countless individuals and families that believe they can never own a home because they cannot qualify for a mortgage. Despite the amount of good information available online, it is easy to believe the myths and misconceptions found on the internet. This is especially true when it comes to lending information and advise for people with poor credit. There are definitely strict requirements such as income verification and underwriting approval, but it is possible to become a homeowner with less than perfect credit.
Consumer Credit Report
The first step to financial freedom, which includes getting a mortgage, is to understand your credit report. There are many free ways to obtain a copy of your consumer credit report online, and most states offer at least one free printed copy per year. The main factors that affect a credit score are: payment history, credit usage, inquiries, and age of credit.
Even one missed payment could negatively impact your credit score, so it is important remain current or reach out to your creditors as soon as you know you may fall behind. Creditors often have programs that allow borrowers to skip a payment or change their due date. Communicate early to avoid penalties and late payment fees.
Down Payment
Lenders want to know that applicants are disciplined in their financial habits. Aside from a good on-time payment history, lenders also like to see regular deposits into a savings account or a retirement savings plan. Consistently setting aside money helps you look good to the lender and also ensures that you will have enough funds to cover the required down payment, closing costs and other fees.
A larger down payment is the best way for someone with less than perfect credit to obtain a mortgage loan. There are federal, state, and local programs that offer free credit counseling and down payment assistance for homebuyers. Enrolling in one of these credit awareness programs will likely improve your chances of being approved for a mortgage with a lower credit score.