Securing A Mortgage With Good Or Bad Credit
The kind of mortgage you get will be very different depending on how your credit is. Thankfully, there are plenty of options for those that have both bad and good credit. Here is what you need to know about securing your mortgage in either financial situation.
Good Credit Options
Be aware that your options for a mortgage with good credit are nearly limitless. If your credit score is above 620, you can get fixed and variable rate mortgages that range in various lengths between 10 and 30 years. This means that you can get the exact kind of loan that meets your needs, such as an adjustable rate mortgage, which gives you a financial advantage if you plan on selling your home in a few years.
Borrowers that have cash on hand can also avoid paying private mortgage insurance (PMI). This can be done by providing a large down payment to the lender when securing the mortgage that is 20% or more of the home's value. A large down payment also decreases the loan amount and lowers how much interest you will pay over the life of the loan.
Bad Credit Options
Without great credit, you can still get a home by getting a Federal Housing Administration (FHA) loan. Start by looking at your credit score to see if you qualify, since you'll need to have a credit score no lower than 500. If it's below that, you'll need to do some work to get it higher. Start paying off some of your existing debts, and show that you can better manage the credit you have been given. Do not have your credit utilization always close to the max, since you should demonstrate how you are responsible and won't go crazy with using it.
Know that your loan options will also be limited. You won't have the flexibility of different mortgages that people with good credit have, often limiting you to a 15 or 30-year fixed rate mortgage.
You'll still need somewhat of a down payment as well. Expect to have at least 1.75% of the home's value in cash to give as a down payment, which will result in the need to pay PMI. This will be an ongoing monthly fee that is about 1% of the home's value
Speak to a mortgage lender for more information about getting a loan for either good credit or bad credit. They'll be able to let you know which one will be best for your needs. For more information on bad credit home loans, contact your local home loan lender.