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When you’re looking to buy a house, you can expect that lenders will immediately look at your credit history. The better your credit history and the higher your score, the more likely you are to be approved for a good mortgage.
So, what do you do if your credit history leaves a lot to be desired or simply doesn’t exist? Well, don’t give up hope just yet because you may have options. From getting your debt under control to applying for an FHA loan, below are some tips to help you land that mortgage so that you can move into the home of your dreams!
Know your credit score.
The first thing you should do is obtain your credit reports, which will show you your credit score and history. Each of the three credit bureaus — Equifax, Experian, and TransUnion — will provide you with one free report per year. Once you get the reports, thoroughly look them over to check for errors, and be sure to dispute any errors should you find them.
Once you have an understanding of your credit score and history, you will have a better idea of what kind of mortgage you should pursue. For instance, a conventional fixed-rate loan requires a minimum score of 620, while adjustable-rate loans require at least a 640.
Get debt relief.
If you are carrying a substantial amount of debt, you will probably need to get a grasp on it before applying for a mortgage. Explore debt relief and assistance in your state, and hire a debt relief specialist to help guide you through the best ways to manage your debt. Factors like your total debt and employment status will play a role in choosing the right solution.
Build your credit first.
This may not sound too fun, but you might consider building up your credit before buying a house. Even if you get accepted for a mortgage with a low credit score, chances are that mortgage will not prove cost-effective in the long term. If you apply for credit cards and consistently make your payments on time, you can get your credit score up within a few years.
Turn to smaller institutions.
If you have no credit history as opposed to poor credit history, you may be able to find a smaller bank or credit union that is willing to work with you on a home loan. However, start with any banks where you have been a long-time customer.
Ask someone to cosign.
Another way you could possibly score a mortgage if you have little to no credit history is to find a cosigner, such as a parent or a partner. In short, a cosigner will assume legal responsibility for your home loan in the event that you default on your payments or your debt goes into collections. If you have already been approved for a mortgage, using a cosigner can also land you a higher loan amount and a better interest rate.
Research FHA loans.
Finally, it might be worth your time to look into FHA loans. These are popular home loans for individuals who have no credit history and/or low incomes. To determine whether or not you qualify, the FHA (Federal Housing Administration) will review your payment history for bills like car insurance, rent, utilities, and so forth. Therefore, if you’ve been consistent with such payments, you stand a better chance of getting approved.
It may require a little more work, but you can still get a mortgage if you have bad credit or no credit. Remember to check your credit score and look into all of your debt relief options. Also, consider taking time to build your credit, seeking a loan from smaller banks or credit unions, and using a cosigner on your mortgage application. Lastly, if you have a history of paying your bills on time, apply for an FHA loan.
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