If you have a great credit rating, you will not have a hard time getting a mortgage. Almost every lender will be more than happy to serve you. On the other hand, if your credit rating is low, you will have a hard time getting a insurance to finance your new home.
Your credit reports and credit rating are very important for creditors to know if you are a good or bad candidate for a mortgage. Apart from this, assessing your creditworthiness allows lenders to get a better idea of how much money they can lend to you with confidence. In other words, this can ensure that you will make the payments on time.
The credit reports and scores will help the lender know if you have paid off your previous insurances without any missed deadlines. If you have a lot of late payments, or are late in payments, your rating is likely to be poor. Mentioning any of these can be a red flag for potential lenders. Since the goal of the lender is to make a lot of money, they may take you as a risk.
Unfortunately, if you change your habits, they will still look to your past to get an assessment of whether it was a good idea to engage with you. Likewise, if you have a credit score of 750, the lender will still consider your use of debt. If your reports show that you take out insurances often, you may find it a bit risky to give you a insurance.
First time home buyers
If you are buying a home for the first time, getting a traditional home insurance with a poor credit rating can be a bit tricky. However, it is not an impossible goal to achieve.
Tips to qualify for a mortgage with bad credit
Here are some tips you can use to improve your chances of qualifying for a credit rating. If you follow these tips, your application will likely be approved.
1. Make a larger down payment
First, if you do not qualify for a non-traditional insurance, you can wait a while and save money for a larger down payment. The problem is that lenders consider borrowers with a bad credit score to be too risky. Generally, lenders are willing to give insurances to lenders who can pay at least 20% down payment. So, if you can pay that much as a down payment, you will be able to qualify.
2. Reduce the use of your debt
If your credit rating is poor and you are trying to get a insurance, we suggest that you reduce your overall share of debt to income. This stake allows the lender to know how much money you can afford.
3. Use the rental history
In most credit reports, you cannot find information about the user’s rental payments. But if you can, you can prove that you made all payments on a consistent basis over the past 24 months. Apart from this, some other reporting tools can also. They may include RentTracki, Rental Kharma, and Rent Reporters, to name a few.
Before you look for a tool, we suggest that you do your homework to familiarize yourself with the monthly fees and charges. Apart from this, you should find out if your private data can be protected and what steps you have to take in case of canceling the service.
Keep in mind that these tools only report to large credit bureaus. However, you can also find some that can send their reports to all of them.
4. Explain your circumstances and credit rating
Another good way is to write a letter explaining your situation. In the letter, you should state the reasons for your negative score on your credit report. It tries to convince the lender that mistakes won’t happen again.
Also, you should make sure that you are trying to handle the situation you are in. For example, you can help them realize that you are looking for a job. Before speaking to the lender, make sure you have documents that show the credit challenges you’ve been facing. Aside from this, if you can point out the offensive items in your credit history, you may be in a better position to get a mortgage.
When heading to the lender, make sure you are specific. You should not be afraid to provide details of your concerns and needs. This will save you a lot of headache down the road.
Long story short, if you have a bad credit score but are still looking for a lender to give you a insurance for your first home, we suggest you follow the tips in this article. Also, be sure to discuss the matter with your mortgage professional or mortgage broker.