Your credit scores and credit reports are the initial information lenders use to determine whether you are a good or bad risk for a mortgage loan. Weighing up your creditworthiness also offers lenders an idea of the amount they can safely provide with confidence. If you have a lower credit score, it can be difficult for you to get a home loan. Besides, you can be subject to higher interest rates and fees than the ones with better credit scores.
However, it is not impossible to get a home loan if you have less-than-optimal credit. These are diverse lenders, who offer house loans for bad credit in Houston and the surrounding areas. And for this, all that you have to do is to take some measures and show them your positive side. To make the things clear to you, here, we have listed down a few proven ways that can help you to get a home loan with bad credit.
- · Prepare for a large down payment
Do you not have the best credit score? Then, saving for a down payment will go a long way toward getting your approval from a lender. It shows the lender your ability to put money toward your loan. As for how to save for a down payment, creating a budget in order to find ways to cut expenses or picking up side work to generate more income are understandable solutions. Besides, if you have loved ones, who are interested and ready to help, then ask them to gift you money toward your down payment.
- · Check your credit reports and dispute charges
Credit bureaus accumulate information about the credit habits of millions of people. And so, there is a possibility that inaccurate information can show up on your credit report. Take the initiative to request a copy of your credit report and check whether there are any errors. If you find any, you can follow these procedures to submit a dispute and get the error removed from your report. Besides, you can also choose to use credit repair services to help you with this.
- · Pay down debt and lower DTI
Another factor that lenders look at when deciding whether or not to approve you for a loan is your debt-to-income ratio (DTI). By dividing your total debt including your house payment, by your gross monthly income, DTI is calculated. Ideally, when you are looking to buy a home, you want to shoot for a ratio that is no greater than 43%. If you do the calculations and find out that your debt-to-income ratio is higher than it needs to be, you don’t have to worry. There are several steps that you can take to improve it. One way is to work on paying down your debts while the other one is to increase your income. Either of the methods will improve your DTI.
Following the above-mentioned ways will bolster your chances of getting approval for a home loan program with bad credit. Follow these ways and ensure a home loan from a mortgage lender.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.