If you have excellent credit, it shouldn’t be difficult to take out a mortgage to finance your home purchase in Rochester, Minnesota — almost any mortgage lender will gladly underwrite your home loan. But what if your credit score is in the mid-600s or lower?
Getting approved for a home loan with less than stellar credit can be a hard nut to crack. After all, mortgage lenders generally assume that all borrowers with bad credit will probably fail to make timely mortgage payments, pushing the loan to go into default and making it less likely for the lender to get its money back plus interest.
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As difficult as it is, qualifying for a mortgage with bad credit is not an impossible feat. Yes, even with bad credit, you can get financing for your new home. Working with a licensed mortgage company in Rochester, Minnesota is crucial to the success of your mortgage application, but there are other ways you can improve your chances of qualifying for a mortgage with bad credit. These include the following:
1. Improve Your Credit Score
While it may not be the solution you were looking for, it is the most practical and will save you thousands of dollars in interest payments. Not only would you have more mortgage options if your credit score improves, but you will also be able to get your mortgage with a lower income threshold and down payment.
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2. Shop Around for a Good Offer
If you are unable to improve your credit score before taking out a mortgage, shop around for a reasonable deal. Some mortgage lenders in Rochester, Minnesota have more favorable financing terms than others. You might be able to save thousands of dollars simply by checking with different lenders and locking in a lower rate or paying less in fees.
3. Check for Bad Credit Home Loans
There are many mortgage programs specifically designed to help homebuyers with bad credit in taking out a home loan. Some options that may work for you include Federal Housing Administration (FHA) loans, U.S. Department of Veterans Affairs (VA) loans, U.S. Department of Agriculture (USDA) loans, Freddie Mac Home Possible mortgage, and Fannie Mae HomeReady mortgage.
4. Find a Co-Signer
If you have bad credit, you can also have a friend or family member with better credit co-sign your mortgage application. The co-signer’s creditworthiness will certainly help your mortgage application. However, if you fall behind on your mortgage payments, the co-signer will be responsible for paying the entire debt—and, of course, their credit will suffer.
5. Make a Larger Down Payment
It is possible to have both bad credit and significant savings. Lenders are generally willing to make loans to borrowers who can put down at least 20% of the home’s value. So, if you can pay a larger down payment, you may be able to qualify for a mortgage in Rochester, Minnesota even with bad credit.
6. Reduce Your Debt Usage
A new credit line or a major purchase can quickly bring down your credit score, so try to reduce your debt usage during the mortgage application process. Do not take on or apply for new debt until after you have closed.
Looking for a Mortgage Company in Rochester, Minnesota?
Your credit may not be as much of an obstacle as you think. Even if you have a bad credit rating, you can still find a mortgage lender to underwrite your loan if you follow the advice given above.
If you are looking for a reputable and licensed mortgage company in Rochester, Minnesota, you can count on Compass Mortgage. Call us at (877) 793-9362 or contact us online to learn more about how we can help you make wise and informed choices regarding your mortgage financing.