The thought of having to shop for a home loan when you have bad credit is one that causes a lot of anxiety to plenty of potential borrowers.
It is not uncommon for people to think that no bank would ever lend them money, which only discourages them from approaching lenders.
The thing that is lost on many people that have poor credit scores is that, there are many lenders out there that would be willing to lend them Pembroke Pines home loans.
If you are one such person who suffers from a bad credit history, you will be happy to know that Nationwide Home Loans is willing to partner with you. Learn what a mortgage broker is by clicking here.
Since a lender will be taking on a huge risk when lending you money when you have a low credit score, there are certain things you can do to convince a lender to loan you Pembroke Pines home loans.
One thing you can do to make yourself attractive to a potential lender is to make a sizeable down payment on a home loan you will be taking. Lenders will normally require that you make a 20% down payment when applying for a conventional mortgage.
When you think about it, it means that you would require not less than $20,000 when buying a $100,000 home.
This percentage acts as collateral in the unfortunate event that the borrower is unable to meet their financial obligation to the lender. If the home goes into foreclosure, the bank can be certain that they will be able to recoup a significant amount of their investment.
The lower your credit score, the higher a down payment the lender will demand.
If a borrower is a first time buyer and has a bad credit score, most lenders will require that they take out mortgage insurance. This type of insurance is sometimes referred to as private mortgage insurance whose main purpose is to protect the lending institution.
Mortgage insurance is usually required for all conventional home loans that have a down payment that is less than 20%. Even though it lower the overall risk to a lender, it will increase the monthly cost of your home.
The overall loan amount determines the rate for PMI. Usually, Private Mortgage Insurance will range anywhere between 0.3% to 1.5% of the home’s total cost.
What this means is that if you bought your home for $203,000, your private mortgage insurance will range between $609 and $3,045 every year. This might make a home unaffordable to a buyer.
In some cases, it is possible to get the PMI exempted after building up equity in your home. Most lenders will consider this once the equity is at least 20% of the home’s value.
Before you start working on your bad credit scores, you need to understand what it is and how it is calculated.
A credit score is how lenders are able to determine the health of your finances. Many lenders will take a look at your FICO credit score to determine whether you qualify or not. The credit score is calculated by considering all of the following:
- Amount of money you owe
- Credit mixture
- Length of your credit history
- Amount of money you owe
- New credit
- Payment history
The table below shows how lenders rate different credit scores:
300 – 499
500 – 579
580 – 619
620 – 679
680 – 699
700 – 850
If a borrower has a higher credit score, then they are likely to get a low interest rate while the vice versa is true.
The minute your credit score goes below 620 many lenders will be reluctant to offer you a conventional mortgage and if they do, they will require that you make a sizeable down payment. In fact, it is hard to find FHA loans when a borrower has a credit score that is below 620.
The difference in credit score points, can have a significant influence on the amount of money you can save on a mortgage especially if the mortgage duration is long.
Also known as DTI, debt-to-income ratio is used by lenders to shape out the details of your Pembroke Pines home loans. This number indicates the overall debt you have to the amount that money you make every month. Lenders usually work with borrowers who have a lower ratio because it demonstrates that you are likely to pay bills in a timely manner.
Lenders usually look for borrowers that have a DTI of less than 43%. This debt to income ratio is usually calculated both with or without the mortgage you are applying for. If it includes your new mortgage payments, lenders usually prefer for it to be under 45%.
The reason why this is done is so that the borrower has sufficient funds left to take care of every day costs.