Man and woman smiling while holding keys to a brand new house

Mortgage lenders want to know that you’re a responsible borrower before they lend you money to buy a home. Because they can’t just take your word for it, they’ll often check your credit report to determine your eligibility. Credit scores play a big role in determining whether or not you’ll qualify for a mortgage, which is why it’s so important to grow your score to its highest potential before applying. Still, you might find that your score isn’t where you’d like it to be.

If you’re wondering, “Can you get a mortgage with bad credit?” you’re not alone. Many people have bad credit and still would like to buy a home. Luckily, there are things you can do to prepare you to get a home loan despite having a less-than-ideal credit score. Credit unions, such as Solarity Credit Union, are willing to look at a borrower’s unique situation, evaluate loans that might work for them and provide them with information on how to improve their score.

Here are a few tips to help you prepare to get a mortgage if you have bad credit.

What is considered bad credit?

Credit scores are given in the form of numbers ranging from 300 to 850. The score measures your creditworthiness and is an indicator to show lenders how likely it is that you’ll be able to pay back a loan. This is why your score is so important when applying for a mortgage. Your credit score is based on items such as unpaid debt, available credit, bill-paying history and longevity of loans. The higher your score, the better credit you’re considered to have.

Though what’s considered a bad score can vary depending on the financial institution you’re working with, scores below 670 are generally considered fair (580 to 669) or poor (579 or lower), according to the credit reporting agency Experian. If your score is in this range, however, there may still be options for securing a mortgage. There are also ways for you to improve your score before applying for a mortgage.

What are the consequences of getting a mortgage with bad credit?

While it may be possible to get a mortgage with bad credit, you’re likely to experience consequences due to your low credit score. One of those consequences is having fewer loan options. Not every lender will be willing to work with someone who has a bad credit score, as they view it as a reflection of your probability of paying back their loan on time.

Another consequence you might face is having a higher interest rate and lower borrowing limits. You might have to come up with a larger down payment to prove that you can save and be responsible with money.

How can you check your credit score?

Before applying for a mortgage, it’s best to check your credit score to see where you stand. This can be done easily through one of the three major credit reporting agencies. These agencies include Equifax, Experian and TransUnion. Free copies of your credit report can be requested from each of these agencies once a year without lowering your credit score. This way, you can always have a good idea of your credit status.

Checking your credit score before applying for a mortgage can help you make a plan to improve your score so you’re in a better place when you do apply. It can alert you to any errors listed on your credit report, and you can fix these before submitting a home loan application. For instance, if it says you have an outstanding balance on a credit card you’ve already paid off, it can negatively affect your score. Correcting this can increase your score significantly.

How can you improve your credit?

Another benefit of checking your credit score before applying is that you’ll have the opportunity to improve your overall credit situation by increasing your score. With an improved credit score, you’ll be able to strengthen the chances of securing a home loan with a better interest rate and terms.

There are many ways to increase your credit score, one being to decrease the amount of debt you have. Take a look at all of the debt you currently owe and create a plan to pay it off before you apply for a home loan. Credit cards and vehicle loans are good options to pay off quickly. When your debt decreases, your credit score will likely go up as a result.

You can also increase your credit score by making on-time payments. Lenders love to see that you are responsible with your borrowing habits and have a positive history of on-time payments. Keeping up with those payments will increase your credit score over time. Pro tip: use automatic payments or bill pay in online and mobile banking to schedule payments in advance to help build a consistent track record of on-time payments.

Getting a loan with bad credit

You shouldn’t feel too down for having a bad credit score. If you are responsible with your money and making strides toward improving your score, you may be able to make up for it. Remember, your credit score isn’t the only factor a lender looks at when determining your eligibility for a home loan. They’ll also look at your employment history, your current income, your outstanding debts and the amount of your down payment. A good lender will look at the whole of your situation, and it’s in their best interests to do so.

Credit unions like Solarity Credit Union are well-known for being more accommodating to potential homebuyers with questionable credit. This is another reason many people choose to obtain a mortgage from a credit union over other lenders. We’re not-for-profit institutions that put the people we serve first. And we are more willing to take a closer look at each individual situation. We want to help future homeowners achieve their goals, whether that means working to improve their credit score or making the most of the assets they do have.

Looking to buy a home but worried about your credit? Contact a Home Loan Guide at Solarity to start a conversation about your mortgage options. You might be surprised to find out you have more options than you thought when it comes to getting into a home of your own.

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