Bad Credit
There are many variables that can potentially cause a bad credit rating, and it’s important to know your credit score before applying for a mortgage loan. When you’re applying for a new home loan, your credit score will be one of the first pieces of information you’re asked to provide. Lenders use this to determine how likely or unlikely you are to default on a mortgage loan. Your credit score can determine what type of loans you qualify for, what type of financing you’ll receive, and if you’re a favorable candidate to lend to.
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Why your Credit Score Matters
Mortgage lenders look at your credit score to assess the risk/reward ratio before offering you a loan. A bad credit score indicates that the candidate is at a higher risk of defaulting or walking away from the loan. A borrower with a bad credit score will have more limited options in the type of loan they qualify for. Mortgages offered to people with a bad credit rating typically have a higher interest rate and are a variable (versus) fixed rate. This means that the interest rate can change with the market.
What is Considered “Bad” Credit?
Typically, any score over 650 is considered excellent credit. A score of 620-649 is considered good credit, and scores below 620 are flagged as bad credit.
Qualifying for a Mortgage
Don’t be deterred if your credit score is less than favorable. If you’re in this situation, there are several options to consider. The first step is to learn more about how to improve your credit score.
The second step is to find out what loans are available for those with a lower credit score. For a borrower with a credit score that is less than 620, a subprime mortgage loan is your most likely option. These loans are often less flexible in terms of early payoff penalties, have a variable rate (instead of a fixed rate), and typically have higher interest rates than a traditional loan. If you have a bad credit score but are confident that you can make a monthly payment without going into default, this type of mortgage could be a good option to consider.
Here at Signature Lending Services, we can help advise you on which loans you might qualify for and explain the details of how these loans work. Call us a 877-948-2562 to find out some relatively quick ways to improve your credit and learn about the lending options that are available.