Contrary to common opinion, you can still get a mortgage even though your credit is less than perfect. Borrowers with poor credit will also receive mortgage funding by specially adapted services for them. Equally relevant is that credit ratings are not final, so you might be able to boost your score and step towards a higher credit range with a few financial changes.
Which are the ranges of credit score?
Generally, credit ratings vary from 300 to 850. The most important thing to bear in mind as a borrower is, the higher your credit score, the lower your interest rate. However, the credit scores of a lot of borrowers are not usually in the top range:
- Excellent: 961-999
- Sound: 881-960
- Fair: 721-880
- Bad – 571-720
- Very bad: 301-571
It is also possible for homeowners in the last two categories to apply for mortgage aid, but you may have to resort to a government agency.
Is there a credit too low to qualify for a mortgage?
There is no threshold for the credit score that would certainly disqualify you from receiving a mortgage, but the lower the ratings, the more challenging it will be to find a lender to agree to your loan. In general, lenders consider low-credit borrowers as more inclined to fail, ensuring that the lender is less likely to have its money back, including interest. However, each lender assesses loan applicants accordingly. Some will make loans to low credit ratings borrowers, while some will merely pass.
How does bad credit affect you?
When determining whether to accept a loan application and how much interest to charge, lenders review the applicant’s credit ratings. Other variables are often viewed by lenders, including loan-to-value (LTV) and debt-to-income (DTI) ratios, but credit scores are highly significant. For conventional mortgages, borrowers with perfect credit are eligible for the cheapest mortgage rates. Credit scores in the 570s or below will find it more challenging to apply for a loan since such borrowers typically pay a much higher interest rate, which means that the loan would be costlier.
How much money will you end paying because of your bad score?
In 2020, interest rates on new and refinanced mortgages had reached record lows. Experts have stated that the average 30-year fixed mortgage rate in 2019 was at least 3.4%, but interest rates were floating near 3% at the start of 2021. Even so, those record-low rates may not even be open to bad-credit borrowers. While rates are lower on average than they were a year ago, it should be anticipated that lenders with low credit scores would pay more than borrowers with better credit. The lower the credit score, the higher the APR. It can go as high as 5%.
Last thoughts
If you have a bad credit score, it is advisable to boost it before applying for a loan unless you are under too much pressure to get a new home. This will help you pay less interest in the long term and also to save up for renovations needed after purchasing a home like say, a bathroom renovation at bathroom renovations Central Coast.
