How to Buy or Refinance a House with a Low Credit Score

Are you wishing you could buy a new house but holding out because you’ve got a low credit score? Even if you have bad credit, you may still be able to get a mortgage. And if you’re already a homeowner, but a low credit score has stopped you from refinancing your primary residential mortgage to take advantage of today’s excellent interest rates, there is still hope! Read on to learn how to not let common misconceptions stop you from buying or refinancing a house – even if you have a low credit score.

Mortgage lenders examine your financial situation and credit when reviewing your application. While having a high credit score and a low debt-to-income ratio (DTI) can work in your favor to secure the lowest interest rates, people whose credit could be improved still have options.

Check your credit score

First things first: review a copy of your credit report before you apply for a loan. You are entitled to one free credit report from all three credit bureaus once each year at annualcreditreport.com.

Look for potential errors, such as accounts that may not belong to you or inaccurately reported late payments. If you find an error, you may file a dispute and if a negative mark is then removed, your credit score may increase. For genuine negative marks on your credit report, it may be worth sending a letter detailing the situation along with your application for the mortgage lender to take into consideration.

Consider using a co-signer

One option for applicants who cannot get approved on their own is to ask someone, such as a spouse or relative in a more stable financial position, to co-sign a mortgage for a new home loan. A mortgage lender will examine the co-signer’s credit, income, DTI, and more during the application process. Using a co-signer means that you and that individual will have equal share in the house you purchase. If you get into financial difficulties and cannot make your payments, your co-signer will be legally responsible for the debt.

For people with poor credit who are looking to refinance, applying with a non-occupying co-client is an option. A mortgage lender will consider both of your credit scores, income, and assets when underwriting the loan. Much like co-signing for a primary residential mortgage, refinancing with a co-client means that whoever the co-client is will be pursued in the event that you fail to pay back your loan. So, when making the decision to join with a co-client, be sure to consider your ability to make payments and the potential strain on a relationship if not.

Look into FHA-backed mortgages

The Federal Housing Administration (FHA) provides assistance to people with low credit scores or who cannot afford a large down payment when they are ready to buy a home. While the FHA does not directly provide the mortgage, it insures mortgages that are lent out by FHA-approved mortgage lenders in Denver, CO and throughout the nation.

In order to qualify for an FHA-backed mortgage, the home must be the borrower’s primary residence and residential mortgage. There are other requirements for an FHA-insured mortgage that our experienced lenders at The Home Loan Arranger in Denver, CO would be happy to go over with you.

For refinancing, an FHA streamline refinance will allow homeowners to refinance an existing FHA loan without the standard credit check and income verification – and sometimes even without an appraisal. (Worth noting: this refinancing option is only available to homeowners with a mortgage that is already an FHA loan.)

If you’ve already allowed your credit score to hold you back and would like to explore the options available to you as you set out to buy a home or refinance, our experienced team at The Home Loan Arranger in Denver, CO would be happy to work with you.

We will take the time to look at your situation from every angle to make sure that you get the best deal on the market. Call us at 303-862-4742, email [email protected], or request a consultation today, so that we can get to work for you. Having low credit does not mean you can’t enjoy the benefits of homeownership. Let us show you how to get to where you’d like to be!