How to Find a Mortgage with Terrible Credit and No Refinance
Bad credit can seriously hinder your chances for securing a good mortgage. However, credit scores are not permanent; with some effort, you can improve your score, and thus improve your chances of getting a good mortgage. Also, it is not impossible to get approved for a mortgage when you have bad credit. There are a number of things you can do to help your ability to qualify for a mortgage and buy a new house, including saving for a large down payment, working to improve your credit and increasing your income.
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Instructions
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Begin saving for a down payment. This could take months or years, so start as soon as you can. Banks and lenders like to see you put down at least 20 percent of the home cost as a down payment, according to CNN. The bigger your down payment is, the more likely you are to get approved. You can still buy a house with less than 20 percent down, but that is a good number to shoot for.
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Find out your credit score by consulting your bank, which can review your credit history and determine your credit score. You can also review your credit report for free at annualcreditreport.com. This gives you an idea of how much work you need to do to improve your credit. According to Bloomberg, in late 2010, many banks raised the required credit score to get approved to 640. However, you should aim a little higher than 640, as a better credit score leads to a better mortgage with lower interest rates.
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Review your credit report to see if any accounts are delinquent or to see where your biggest problems are. Attack those areas first. Bring all accounts current by paying off all past due bills or missed payments. Then, attack your debt by paying off each account as much as you can. You do not necessarily need to pay off all balances completely, but you need to reduce your debt-to-income ratio to be around 36 percent or lower, according to "U.S. News & World Report." The debt-to-income ratio is the amount of debt you owe as compared to your total income.
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Take a second job or perform odd jobs around your neighborhood, like walking dogs or mowing lawns, to earn extra money. Put this extra money toward paying down your debts to improve your credit score. Also, cut out luxuries from your lifestyle, like cable TV, and use the money you save to pay down your debt.
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Ask a family member or roommate with good credit to co-sign on the mortgage loan with you. With a co-signer, both of your credit scores are taken into account for a mortgage loan decision. If the co-signer has good credit, it increases your overall chances of approval. A co-signer can be a parent, spouse or roommate.
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Tips & Warnings
If someone co-signs on a home loan, they put their credit at risk. If you fall behind on payments, it will hurt your and the co-signer's credit scores.
Beware of lenders promising to give you a mortgage that is too good to be true. Oftentimes, it is. Someone with terrible credit simply cannot qualify for a good loan without improving their credit score and/or involving a co-signer.
Do not buy a house you cannot afford. If you miss mortgage payments, your credit score will be further damaged and you could risk losing the house to foreclosure.
References
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