Before the subprime mortgage crisis began to unfold in 2007, prospective home buyers with marginal or even very poor credit were sometimes able to qualify for a home loan. The ensuing recession years, that were largely due to the collapse of the real estate market, served to tighten up the lending rules for home mortgages and once again force buyers to prove their financial stability in order to qualify for a home mortgage.
However, there are still some options for prospective home buyers who have been working to improve their credit rating, but are still classified as having marginal credit. If you are one of this large group of buyers, here are some tips you can use to help you get the home loans approval you desire.
Ask for manual underwriting
The first tip is to always ask for your mortgage application to be scored through a manual underwriting process, instead of the automated one. This can be helpful because it means that each bit of information will be assessed by a skilled underwriter who will be able to give consideration to explanations and additional details that an automated underwriting process would miss. Small local lenders are a good place to begin your search for manual underwriting options.
Consider using a cosigner
Another strategy for successfully qualifying for a mortgage with credit that is recovering but still marginal, is to use a co-signer who has strong credit. A parent, grandparent, or sibling who is willing to assist in this way can be very beneficial in helping prospective buyers overcome credit challenges that might otherwise prevent them from becoming homeowners.
To make this plan more appealing to the party who agrees to be the co-signer, prospective buyers may want to have a formal agreement drawn up that states that they will refinance the purchase with a mortgage in their own name at the end of three or five years.
Try for a USDA or FHA home loan
Two home loan options that can still work for buyers with marginal credit are USDA Rural Development Home Loans and FHA mortgages. Both have slightly more relaxed lending guidelines, as well as repayment terms that are a bit less stringent than many other types of home loans.
Prospective buyers who are working to improve their marginal credit scores, but who want to purchase a house as quickly as possible, can get sound lending advice by opting to work with an experienced home loan lender or mortgage broker in the their area.