As of May 24, 2012, mortgage rates are at record lows. According to mortgage buyer Freddie Mac, the average rate on a 30-year fixed mortgage dipped to a record low 3.78% the week of May 21, 2012. That number is down from 3.79% earlier in May. The 30-year fixed mortgage rate of 3.78% is the lowest since long-term mortgages began in the 1950s.
The average rate on a 15-year fixed mortgage, a popular option for refinancing, held steady at 3.04%, matching the record low hit last week.
Don’t let bad credit prohibit you from taking advantage of these records lows. Getting approved for a mortgage loan with less than perfect credit is not impossible but it will take some work.
The housing crisis threw a wrench into the mortgage lending industry. Banks and lenders scrutinize even the best credit applicants. Before the housing crisis home-buyers with bad credit could simply seek assistance from a subprime mortgage lender. Now, many subprime mortgage lenders have gone out of business.
Here are several tips to get approved for mortgage loan with bad credit:
1. Get your credit score first. It is imperative to pull your own credit scores before you approach a lender. Knowing your credit scores will allow you to correct issues that may be keeping them low. Lenders will pull your credit scores from the 3 major credit bureaus and more than likely go with your middle credit score.
Get credit scores from Experian, TransUnion and Equifax. While the credit scores you pull may not be the same as the ones the lender pulls they should be fairly close.
2. Improve Your Approval Chances. Pay your monthly obligations, even utility bills on time. Making regular, timely payments is a quick way to rebuild your credit scores and show you manage credit well. Make sure you have a major credit card reporting monthly. Also make sure that credit card reports to the three major bureaus.
3. Show Steady Employment and Income. Lenders like to see a steady income and getting a bad credit mortgage can be made simpler with a stable and steady work history. You should be on the job 2 or more years. If you are self-employed you must be able to show good financial statements for 2 or more years.
4. Bank Statements. Whether you earn a salary, are a wage earner or self-employed be prepared to provide bank statements showing regular deposits and a savings account. Some lenders may require up to 12 months of bank statements. Try to avoid excessive overdrafts and negative account balances. Be prepared to explain any negative information to the mortgage lender.
5. Save a down payment. A low credit score will matter less the higher your down payment. At least a 10% down payment may be required for most loans, unless you go FHA. But the more you can put towards a down payment; for instance , 20% or even 25%, lenders will view you as a lower risk. It’s all about the level of risk a lender must take on; the lower the risk, the better chance of getting approved.
6. Down Payment Assistance Programs. There are down payment assistance programs and first-time home buyer programs in every state. This could be a great option if you are in the income qualifying range. Check-out some down payment assistance programs in your state.
7. Manage Debt. Avoid late payments, continue to pay your bills on time and avoid charging over 30% of your available credit limit on your accounts. Lower balances on your credit accounts compared to the amount of credit you have available will not only improve your credit score, it will show lenders you management credit as well as debt well. A bad credit mortgage will be much easier to obtain if all of your obligations are being managed and paid on time.
8. Get quotes from multiple lenders. When seeking a mortgage loan you must shop around to get the best rate. The credit scoring model makes allowances for consumers shopping for a mortgage. The FICO scoring model will not penalize you for having multiple mortgage loan inquiries if they are done within a 14-day time-span. The newer versions of the creit scoring model, FICO 8, count the shopping period as any 45-day span, unfortunately not many lenders are using the newer version.
9. Consider using a mortgage broker. Mortgage brokers often have access to many lenders and programs that can help you obtain a bad credit mortgage loan. The key is finding a reputable broker with good references. Don’t be afraid to request references and never hesitate to research a mortgage broker through your State’s Licensing Board (Usually the Department of Real Estate). If using a mortgage broker, be prepared to pay a commission but remember that fees and commissions are negotiable.
10. Rapid Re-score your Credit Files. Rapid Re-score is a service offered by a lender or mortgage broker in which your credit scores can be re-analyzed and quickly corrected for the purposes of a mortgage loan. Rapid Re-score accelerates the dispute process, corrects negative information and increases your credit score immediately. This is an invaluable service as one error could potentially make the difference in whether or not you can obtain a mortgage loan.