Mortgage Options for Less-Than-Perfect Credit
Perhaps the single most important aspect that affects a mortgage loan rate is the borrower’s credit score. It’s no secret that borrowers with high credit scores are more likely to get lower mortgage interest rates than those with low credit scores. A credit score of 740 or higher usually qualifies for the best interest rates from most lenders; however, there may be other factors that can affect a borrower’s interest rate as well. The good news is borrowers with a not-so-strong credit score may still be able to qualify for a mortgage loan at a competitive rate.
What your credit score means to a lender
When a lender looks at a potential borrower’s credit score they can determine what type of loan program the borrower qualifies for – either a conventional mortgage or an FHA-type mortgage. Lenders also use credit scores to determine pricing, which includes the interest rate and any other charges that apply.
FHA loan programs
Borrowers with lower credit scores may find FHA loan programs their best option. Because FHA loans are backed by the Federal Housing Administration, lenders can typically provide more competitive pricing even when a borrower’s credit position is riskier. FHA loan programs aren’t the only option for borrowers with lower credit scores, but they have some flexibility that other programs may not.
Know your credit score
Because credit scores are constantly changing, it’s important to check your credit score before you consider applying for a mortgage loan. The three major credit reporting agencies – Equifax, Experian, and TransUnion – collect information about where you live and work, and how you pay your bills. You are allowed to request one free report per year from each of the credit reporting agencies. By knowing your credit score before you apply for a loan, potential borrowers can have time to gather information, investigate, and dispute errors they aren’t sure about.
Credit problems that lenders typically look at are late payment history, including late student loan payments and late mortgage loan payments. They’ll also look at past foreclosures, short sales, and bankruptcy. In addition, lenders look at outstanding debt, outstanding debt from credit cards and other loans, available credit lines, and how many inquiries are on a credit report.
Unsure whether or not you can qualify for a mortgage? Let Priority Lending help you.
If you think your credit may not be perfect, get advice from a mortgage professional before you apply for home financing. Our team of professional mortgage brokers and lenders at Priority Lending can help you understand what you can afford, give you advice on cleaning up your credit score, offer advice on establishing good credit habits, and help you find the best loan option to fit your situation. We have access to a variety of loan program options, some with the lowest mortgage rates in the market. Please call us at (800) 405-7941 to get started.