Get an Approved Home Loan Even With Bad Credit

By Michael Durr

"Mike is a total pleasure to work with! Great lender who explains everything thoroughly and gets you into a product that works well for you. Highly recommended!!" - Tyler Tomek

Securing a home loan with bad credit can be a challenging feat, but it’s not impossible. With strategic planning and a proactive approach, you can increase your chances of getting approved for a mortgage, even if your credit score isn’t pristine. Today, we’ll explore three key strategies to help you get approved for a home loan despite having less-than-optimal credit.

1. A larger down payment. The down payment amount is a critical factor in determining your loan-to-value (LTV) ratio, which compares the loan amount to the appraised value of the property. Lenders prefer lower LTV ratios as they signify less risk for the lender. By contributing a larger down payment, you reduce the loan amount, thereby lowering your LTV ratio. This reduction in risk may make lenders more willing to approve your loan application.

While the standard down payment is around 20%, I see a lot of 3% or 3.5% down payment rates. Regardless of what your rate is, consider saving even more if possible. This can not only improve your approval chances but also result in lower monthly mortgage payments and potentially better loan terms.

2. Lower your debt-to-income ratio (DTI). Lenders also evaluate your debt-to-income ratio (DTI) when assessing your loan application. Your DTI is the percentage of your gross monthly income that goes toward paying debts. To increase your approval odds, focus on lowering your DTI by paying down existing debts, increasing your income, or getting a co-signer for the loan. By actively managing and improving your DTI, you demonstrate to lenders that you have the financial capacity to handle mortgage payments responsibly.

3. Clean up your credit report. Errors or inaccuracies on your report could be impacting your score negatively. Additionally, paying off outstanding debts may not always reflect promptly on your report. To clean up your credit report, dispute any errors with the credit bureaus to have them corrected, and ensure that any paid debts are accurately reflected on your report. You can also request to remove paid debt entries completely to have a clean slate. By addressing inaccuracies and actively managing your credit, you’ll present a more favorable financial profile to potential lenders.

While securing a home loan with bad credit may present challenges, implementing these three strategies can significantly improve your chances of approval. Remember to consult with financial experts and explore various lenders to find the best possible terms for your specific situation.

One of my specializations is helping people improve their credit to lower their rate and get a better mortgage payment. If you have any questions about how we can help you secure a home loan despite less-than-optimal credit, don’t hesitate to reach out to me at (713) 859-9994 or mike@mortgageguys.pro. I look forward to hearing from you!