Fear of being denied to get a loan has often lead most consumers with poor credit scores to not bother about applying a mortgage loan. But since you still have to offer proof of your monthly income and your assets and also offer an explanation for having poor credit score, it is still possible to take out a mortgage despite having a poor credit score. In short, your credit score is a part of the puzzle of qualification but it is not the entire puzzle.
Low credit score – The calculation from ‘fair’ to ‘poor’
There are no such hard lines between good credit score and bad but the credit scores usually break down in this manner. A number which is roughly between 300 and 850 summarizes the creditworthiness of a consumer. The higher is the FICO credit score; it is more likely that the borrower will pay back his loan on time. Usually, a ‘low’ credit score is in between the ‘fair’ and ‘poor’ ranges.
740 and higher is considered excellent
661 to 739 is considered good
601 to 660 is considered fair
501 to 600 is considered poor and
500 and lower than that is considered bad
A bad credit mortgage – What is it?
To be very frank, there’s nothing called bad credit mortgage and they’re similar to standard mortgages. It is nothing but any other mortgage which a lender will lend to a person who doesn’t meet the credit score standards. You may check out http://www.homeloancorp.com/bad-credit-home-loans/ for more information on bad credit home loans but in reality there is no such difference. They are sub-prime mortgages which assist people with poor credit history to get on the ladder of being a homeowner.
Is it possible to get a mortgage despite having bad credit?
The interest rates that you have to pay on poor credit home loans are often higher than the conventional mortgages and you will also require a large down payment in order to secure the lender in the event of a default. Such home loans won’t work with any other federal schemes and they even don’t accept applications from people who were bankrupt since the last 6 years. Applicants require a steady income and their deposit needs to be higher than a traditional one.
How to know whether you have a poor credit rating?
Credit scores can be tarnished due to a number of reasons but there are definitely few clear causes which may lead to a poor rating. Here are some:
- If you’ve been declared bankrupt or you have a debt settlement plan on
- Missed loan payments, credit card and mortgage payments
- Having court judgments against your name
This is why it is always a good idea to check your credit report once before applying for any sort of mortgage, whether a bad credit or a normal one.
Having an adverse credit report doesn’t bar you from getting a home loan and later on buying a house. You just have to be careful about improving your credit score so that your lender considers you worthy of being given a home loan.