It’s no secret that lenders have been more cautious in qualifying borrowers since the 2008 housing crisis. Careful to avoid subprime lending practices that resulted in catastrophic levels of foreclosure and bankruptcy. With tighter standards in place, you may be concerned that you are locked out of the system, if your credit score has seen better days.
Don’t fret. You always have options, and there are a number of resources out there that can help you get a mortgage even if your credit score is low.
Choose the Right Lender
If strict credit requirements or related penalties are discouraging you from applying for a conventional mortgage consider looking into other types of lenders.
The Federal Housing Administration (FHA), for example, tends to be more lenient. Currently, you can obtain a mortgage loan with a 3.5 percent down payment, if you have a credit score of 580 or higher. The down payment increases to 10 percent if your score falls between 500 and 579. It’s worth noting however, that banks may take their own precautions and raise these rates.
Save for a Large Down Payment
The more money you put down up front, the less you are borrowing, which mitigates some of the risk lenders associate with a low credit score.
When determining the size of your down payment also keep in mind closing costs and moving expenses. Mortgages with less than 20 percent down commonly require mortgage insurance, to protect the lender against the losses in the event you default.
You can slowly rebuild your credit score, but in the meantime there are steps you can take to obtain financing for your dream home. Do your research on the best lenders for you, and start saving for your down payment well in advance.