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How To Get A Mortgage With Bad Credit But Good Income – A Guide

You may be earning a good income, but your credit history is one of the most significant details lenders will consider when approving a mortgage. Bad credit or a low credit score can seriously compromise a person’s ability to gain a mortgage regardless of their income level. This is due to the fact that lenders will consider people with bad credit at risk of defaulting on their loans. However, it may still be possible to quality for a mortgage and purchase a home even if you have a bad credit history. This article will provide information on how to get a mortgage with bad credit but good income.

Part 1: Organising Your Finances

 

1. Obtaining Your Credit Score

To qualify for a property mortgage, it is necessary to obtain a credit score. The credit score is a three-digit number derived from one’s credit history, and this is used when contacting lenders for a credit card or mortgages. Credit scores can be checked by contacting your credit card company or bank. Of course, the bank will typically charge a small fee to provide this information while credit card companies provide the service for free.

2. Knowing What A Bad Credit Score Is

It is important to understand what qualifies as a bad credit rating to know if your credit score is positive or not. Typically, lenders are willing to approve mortgages to people with credit scores of at least 620. The ideal credit score is between 800 and 850; however, this can be difficult to achieve and particularly if you are in the young adult age bracket. If your credit rating is below 600, it is unlikely that you will qualify for a mortgage. This does not mean you will not qualify for specific loans as banks will often offer people in these situations special types of loans.

3. Maintaining A Steady Income

When a lender views a person’s mortgage application, they are likely to take into account one’s ability to pay existing monthly expenses such as rent and utilities. The lenders will also check that you are employed and have maintained a steady income for a minimum of two years. If, however, you are self-employed, the consequences will differ. As a self-employed individual, you must attempt to maintain a steady annual salary. Having a poor credit rating as a self-employed individual can be challenging, but having a strong income can be useful making it easier for lenders to approve a mortgage loan.

4. Reducing And Eliminating Debt

Another point to consider when looking at how to get a mortgage with bad credit but good income is the reduction or elimination of debt. In today’s society, most people have to deal with different types of debt, such as student loans or overdue credit card payments. This type of debt can influence a credit score and statistics indicate that approximately 35% of the credit score comes from this payment history.

To help improve the chances of gaining a mortgage loan, it is recommended that you focus on reducing existing debt. If you are seen to be making a concerted effort to repay debts and late payments, a lender is more likely to approve your application for a mortgage. One must remember that if the credit report shows an old unpaid bill, you should not make a repayment unless it is in full. Partial payments may seem to reduce debt, but they will make the debt more relevant; thereby making them more obvious and hurting the credit rating.

5. Adjusting The Debt To Credit Ratio

To effectively qualify for a mortgage loan with bad credit, it may be beneficial to adjust one’s debt to credit ratio. In other words, adjust the amount of money you owe so that it is lower than the amount of credit you currently have available. Improving this ratio is one of the quickest methods to improve a poor credit rating; thereby, making your application more attractive to lenders.

Part 2: Application For The Mortgage Loan

 

1. Speaking To A Lender

Before considering how to get a mortgage with bad credit but good income, it is advised that you first look at properties and search for mortgages. Begin by speaking with lenders before finding the correct property and note how much you can qualify for in a mortgage loan. This number will help identify the maximum amount you can obtain and define which properties are most affordable to you. Remember, you are not obliged to sign contracts, and if you have a bad credit score the lenders may be able to help improve it.

2. Be Ready To Explain The Bad Credit Rating

One option to overcome the bad credit rating is to discuss the credit score with your bank and explain the reason for this history. If you bring in evidence of payments made on time regarding rent and utilities for at least one year, you may be able to show a steady income. The reason why discussing a bad credit rating is beneficial is because lenders tend to be amenable to borrowers who can prove an ability to meet mortgage repayments.

3. Asking A Real Estate Agent About A Lease-To-Own Agreement

If one’s credit score is too low to qualify for mortgage loans from a traditional lender, it may be worthwhile to consider a lease-to-own agreement. This type of agreement is drawn up between a landlord and a tenant or renter and, as part of the agreement; a portion of the lease payment will go toward purchasing the property. The rest of the payment is considered a rental payment.
The lease-to-own agreement can be complicated real estate contract and you may need to speak with a professional to find landlords willing to enter this agreement. The majority of these contracts are typically conducted with homeowners who are unable to sell their properties at the asking price.

Final Words On The Matter

When looking at how to get a mortgage with bad credit but good income, there are certain steps to take into consideration. By looking at what qualifies bad credit rating and how to apply for mortgage loans, you should be able to find the ideal loan for your needs.