3 Mortgage Tips For First-Time Home Buyers With Bad Credit

Thinking of buying your first home? Worried that past credit mistakes will prove to be a big problem? You're not alone. It's not hard to get in credit trouble. If you suffer a financial crisis like unemployment or a costly health problem, you could fall behind on payments. Those issues could hurt your credit score and haunt you for years, especially when it comes to major purchases like a new home.

Fortunately, there are steps you can take to still qualify for a mortgage even if you have a troubled credit history. The process may take longer and you may need to do a little more legwork, but poor credit doesn't exclude you from purchasing a home. Below are a few tips to help you qualify for your first home loan:

Work with your creditors. Many people with credit problems avoid contact with their creditors. After all, there's nothing pleasant about a collection call. However, in this case, you may want to proactively reach out to your creditors and see if there is any fast action you can take to improve your standing. For instance, some credit card companies will mark your account as paid on time if you make any kind of payment, even if it's less than the minimum amount due. You may be able to settle collection accounts for a reduced amount. These steps can significantly boost your score.

Find the right lender. Every lender is different in their approval standards. Some may have very high requirements, while others may be open to those with troubled credit. Some FHA lenders even specialize in borrowers with poor or no credit. Shop around and find the right lender for you. Don't be afraid to be upfront and honest about your credit situation. You may be able to find a lender that will work with you. Keep in mind, though, that many lenders who do approve those with poor credit may require a higher down payment or charge a higher interest rate. However, if you improve your credit over time, you may be able to refinance in the future and obtain more favorable terms.

Talk to your underwriter. Mortgage approval isn't as simple as looking at a credit score. While the credit score may play a big role in the decision, it isn't the only factor. There may be other things that could work in your favor. Some lenders will let you make your case to the underwriter so you can win an approval. For example, maybe you recently earned a large raise and are in the process of improving your credit. Maybe your credit issues are from the past and you've paid everything on time over the past year. Perhaps the proposed mortgage payment is actually less than what you pay in rent currently. This type of information could be helpful to an underwriter, and it can't be found in a credit score.

Shop around and find the right mortgage lender for your situation. You may need to make multiple calls, but that effort will pay off in the long run when you find the right lender for your needs.