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Getting approved for a mortgage can be a challenge — especially if you’ve been declined in the past. The good news, however, is that mortgage interest rates reached an all-time low of 6.65% in 2021.
While it may take some hard work and perseverance, qualifying for a mortgage is still certainly possible.
Find a Co-Signer
Finding a co-singer may solve the problem of not qualifying for a mortgage. The co-signer essentially assures the lender the mortgage payments will be made since their income will be considered along with yours.
It’s therefore crucial the co-signer is in a strong financial position with a good credit history and stable employment. The legal aspects of co-signing should also be understood before entering this agreement.
If you end up being late or defaulting on your payments, it’s not just your credit score that takes a hit; your co-signers will too.
Consider Alternative Financing
Although the options may be more limited, certain loan options do exist for people with a poor credit history or unable to afford a large down payment.
For example, a FHA mortgage is preferred by 1 in 5 home buyers. It requires a down payment as low as 3.5% with a minimum credit score of 580.
Conventional lenders, in comparison, will want you to have at least a 620 score. If your credit score falls between 500 to 579, you may still qualify, as long as you can make a 10% down payment.
Improve your Credit Score
A good credit score increases your chances of being approved for a mortgage, as well as obtaining a better rate. If you don’t have much credit history, work on building it up.
For example, take out a secured credit card with a low credit limit. Secured credit cards require you to make a deposit in order for approval. They also prove to banks you’re able to borrow from the card and pay it off on a regular basis.
It’s therefore crucial to make your payments on time and maintain a low credit utilization rate. Keep in mind, however, if you already have too many cards, getting another one can actually serve to damage your credit score.
Qualifying for a mortgage isn’t always easy. By finding a co-signer, considering alternative loans, and improving your credit score, you’ll be better able to prove to lenders you can pay them back on time and boost your chances of approval.
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