08/04/2010 Interest rates are historically low, but the competition for loans is incredibly steep. The days of poor credit, no-money-down mortgages are over. You need to be well qualified to get a loan in today's marketplace.
For potential homebuyers with poor credit, the mortgage industry may as well be a black hole. There are few, if any, loans available to candidates with low credit scores, and these few options don't come with the low rates that typify the current market.
But don't give up hope simply because you have poor credit. You're not the only one--studies estimate that over 25% of the American public have credit scores below the 620 mark required by conventional mortgage lenders. But lenders know this. You can still get a mortgage. There are just a few extra steps and considerations to keep in mind in order to get there.
1. Your choice of lenders will be different. This is the first thing to keep in mind. Because you have poor credit, some traditional lenders simply won't work with you. This is to be expected. All this means is that you'll have to do some deep research--more so than a borrower with good credit would have to do--and scrutinize your options closely. There are lenders out there who want your business. You just have to find them.
2. Check for credit mistakes. Analyze your credit report and check to see if anything has been reported wrong. This happens more often than you might think. Sometimes old loans that have been paid off are never removed. Sometimes accounts are marked incorrectly. Credit bureaus are required by law to investigate any issue you bring before them related to your credit report. Check it for errors.
3. Build up your credit. If you have poor credit, you've probably heard this advice before. Build up your credit. It's actually not as hard as you might think. Before trying to secure a mortgage, place a priority on paying off all current debts. You'll want to address your current debt before adding new debt anyway, whether you score is high or low. Make this a priority. After you've gotten most of your debt down to a minimal amount, take out a few small, short-term loans and pay them off on time or early. This will demonstrate to banks and credit bureaus that despite your less-than perfect score, you're on solid financial ground and you're diligent about making payments. Your credit score will improve rapidly if you take these steps.
Altogether, this will help you get a mortgage or a refinance loan in spite of a poor credit score.
