People with bad credit get used to walking carefully. Sooner or later, the get tired or ducking and dodging to avoid creditors. And, they may or may not know how tough it is to live down a poor credit record.
Credit records are gathered, scored, and retained by brand name credit agencies. Most of the banks and financial institutions offering mortgages have guidelines on acceptable and unacceptable scores. And, those cut off points may shift depending on the lenders’ interest.
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What constitutes bad credit?
Among other things, credit agencies compile a single score on:
- number of credit accounts
- missed payments
- overdue payments
- number of delinquencies referred to collection agencies
But, a key index is the total size of your debt and what percentage of your income that represents.
What’s a credit score?
Credit agencies and lenders have collaborated to set credit score ranges. Writing for Investopedia, Sarita Harbour lists them as follows:
● Excellent Credit Score -720 to 850: “Consumers with excellent credit scores may
receive lower interest rates on mortgages, loans, and credit lines because they are deemed
to be at low risk for defaulting on their credit agreements.”
● Good Credit Score -690 to 720: “a consumer is generally financially responsible when
it comes to money and credit management.”
● Problem Credit Score -650 to 690: “Borrowers with problem credit scores are likely to
be declined for future credit because they pose a high risk of not making payments on
time and in full.”
● Poor Credit Score -350 to 650: “Borrowers with credit scores that fall in this range
have little chance of getting new credit.”
● No Credit Score -0 to 349: “If you do have a credit history, and your score has fallen to this
range, drastic steps will likely be necessary.”
What can you do?
- The U.S. Department of Veterans Affairs will stand behind eligible veterans with a VA Home Loan Guaranty benefit. Mortgage providers will look at applicants for VA Loans differently. The Veterans’ Administration will insure up to $36,000 if the buyer defaults. VA Loans may also waive the need for a down payment or private mortgage insurance.
- The Federal Housing Administration supports FHA Loans for people with bad credit. FHA Loans are perfect for first-time home buyers and others with little credit history. Mortgage lenders appreciate the government’s promise to help cover the mortgage if you walk away from the obligation.
Another advantage to the FHA Loan is that, depending on your credit score, your down payment may be as low as 3.5% with a FICO score 580 or more. - Home loans for people with bad credit are available with other strategies. For example, cash in hand always interests lenders. So, if you can save enough for a more than necessary deposit or can demonstrate equivalent assets, you can offset a poor FICO score.
Rent-to-Own options allow buyers to pay rent until the aggregate payments equal a down payment and demonstrate on time payments.
Or, you might secure a mortgage with the help of a co-signer. Parents and siblings may help. But, because it puts their credit score on the line, they may be reluctant to take the risk.
Bad credit does not have to stop you from purchasing a home.
You bad to poor credit score makes securing mortgage credit difficult but not impossible. Lenders understand there is more to your credit than a three-digit score. They appreciate things change and many factors impact your history and potential. A good agent, some research, and a customer-centric lender can help you fix your problems or set you on the right path.
