Sometimes the perfect time in your life to buy a home, and a perfect credit score, simply do not coincide. When your credit is less than stellar, all hope is not lost for being approved for a mortgage loan. By taking a few specific financial steps, you can help overcome your mediocre credit and increase your chances of snagging a home loan.
Spend a Few Months Polishing Your Credit
It's worthwhile to delay your mortgage application by a few months in order to spend time boosting your score. One of the fastest ways to clean up your credit is to dispute inaccurate or very old negative items in order to have them deleted from your credit report. Paying down your debts as much as possible in order to increase your debt-to-credit ratio is another great way to raise your score. Keep in mind that if your credit score is especially low, this step may take a bit longer and even require assistance from a non-profit credit counselor.
Plan for a Higher Interest Rate
When your credit score is in the fair to poor range, chances are any loan you are approved for will come with a hefty interest rate. By preparing ahead of time for a higher rate, you can factor it into the cost of your mortgage. It may be worthwhile to take out a smaller mortgage loan on a more modest and affordable house in order to help counteract the effect of the higher interest rate.
A trusted mortgage broker will help you calculate the mortgage loan rate you should expect to pay. As you work to rebuild and repair your credit, you always have the option of refinancing down the road when your credit score is higher.
Prioritize Saving for a Big Down Payment
The bigger your down payment, the lower your mortgage payments and the sooner you will be able to pay off your home loan. Additionally, a large down payment makes you less of a risk for mortgage lenders since it lowers the amount of money you need to borrow and demonstrates you are committed to home ownership. In order to save, many new home buyers pick up a second job, ask for a raise, or start a side business, setting aside all of the extra money. Other ideas include a loan or gift from relatives if possible or temporarily moving in with family.
In addition to these tips, meeting with an experienced mortgage broker is often the best way to go over your options for securing home financing.