Will bad credit prevent you from getting approval for a home loan application? While the automatic answer is yes, that may not be the case in all the time. Borrowers with a low credit score can find it difficult to get approval for a mortgage but with a little effort, they can make it possible.
Besides, they can opt for low credit score mortgage lenders in Houston, Tx to get approval for a home loan. But before you apply to a lender for a home loan, follow these tips to make the procedure smooth for you.
Come with a large down payment
When you don’t have a good credit score, saving for a decent down payment will go a long way toward getting your loan approval. It shows your lender that being a borrower; you can put money toward your home loan. If you are worried about how to save for a down payment, creating a budget to find ways to cut expenses or picking up a side hustle to generate more income are obvious solutions. Besides, if you have loved ones who are willing and able to help, you can always ask them to gift you money toward your down payment. Moreover, you can opt for down payment assistance programs to finance your down payment.
Check your credit reports and dispute charges
Credit bureaus compile information about the credit habits of millions of people, and so, there is a possibility of wrong entry. Sometimes inaccurate information can show up on your credit report. Before you apply for a home loan, request a copy of your credit report and check whether there are any errors. If you find any, take steps to get the error removed from your report. It can help improve your credit score even slightly.
Pay down debt and lower DTI
Another factor lenders look at when deciding whether or not to approve you for a low credit home loan is your debt-to-income ratio (DTI). The DTI is calculated by dividing your total debt including your house payment, by your gross monthly income. Generally, when you are looking to buy a home, you try to come with a ratio that is not greater than 43%. If you do the calculations and find out that your debt-to-income ratio is higher than it needs to be, don’t worry. There are steps that you can take to improve it. One of the ideal ways is to work on paying down your debts. Another one is to increase your income. Either of the methods will improve your DTI.
Focus on on-time payments
Late payment is something that lenders don’t like at all. If you have a history of late payments, then you need to wait for at least four to five months before applying for a home loan to minimize the impact. In the meantime, do your best to create a track record of on-time payments by paying your credit card bill on time, every time. It will help you to get the approval easily.
So, follow the tips when applying for a home loan to a lender with a low credit score and buy a home of your dream.
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.