You Are Not Your Credit

Approved mortgage loan application

While homeownership is almost everyone’s dream, there are several steps before you can open the door to your new home. One of the actions that prove the hardest for homebuyers is the acquisition of a mortgage. There are multiple elements that determine whether or not you get the mortgage or the terms your lender will advance you. Key among these is the credit score you have. The financial decisions you make throughout will impact your credit rating, but a low score should not keep you from homeownership.

The key to getting the best home loan from a Texas-based lender even with a poor credit score lies in knowing the factors that can work in your favor. Several compensating factors might make up for the poor credit rating you are battling. Here are some of these compensating factors.

High Down Payment

If you can afford to put a considerable amount as your home’s down payment, the lender will look favorably into your application. There are different down payment assistance programs for homebuyers but take time to come up with the money without the assistance programs. You can, for instance, borrow from friends and start saving towards the down payment early so that you will have the cash when you need it.

Rental Verification

In most cases, you will be renting a property before you start the process of buying one. If this is the case for you, get rental verification for a year or two from your property-owner. This document reflects your rent payment history. If it demonstrates your ability to pay rent on time, it boosts the chances of your mortgage’s approval. The chances of rental verification working in your favor are even higher if the rent you have been paying is more than what you will be expected to fork out in monthly mortgage repayments.

Low DTI Ratio

The debt-to-income ratio encompasses the amount of your loans vis-à-vis your pay. A low ratio denotes that your income is higher compared to your debts. If you are aiming to use the DTI ratio as your compensating factor for a poor credit score aim, for a ratio of 5% at most. To reach this, you should strive to repay most of your debts before sending the mortgage application and avoid borrowing.

Accumulated Savings

Man showing mortgage loan contract

Other than the money you will put aside for your down payment, open a savings account. If you have a considerable balance in your savings account when applying for a loan, you come across as a responsible person and one learning to make sound financial decisions. Certificate of deposit, investment, and mutual fund investment accounts are among the best ones to open when aiming to make a good impression on your lender.

Poor financial decisions are unfortunately a common occurrence in most people’s lives. They should however not stop you from achieving your dreams in the future. The compensating factors above are meant to prove to a lender that you are making a good start and will be able to meet your mortgage obligations. Instead of writing yourself off based on poor credit scores, work on the above factors to make yourself creditworthy.