How to Make Yourself an Attractive Mortgage Candidate to Lenders

By now, you’re probably aware of how your credit score can impact your mortgage eligibility.

However, even if your rating is less than perfect, there are ways to make yourself an appealing candidate to a mortgage lender. Here are a few of them:

Pay your bills on time. A missed payment - or one that’s 30 days late or more - can end up on your credit report, remaining there for up to seven years. Even if you’ve had some late payments in the past, however, a good recent credit history may impress a lender.

Avoid excess credit. According to Lending Tree, having a small number of credit accounts helps build up your credit rating, but having too much credit can hurt it.

Avoid adding new accounts or taking out new loans shortly before you apply for any mortgage loans. Having a number of recent credit applications on your record can make it look like you’re loading up on credit. Also, keep your credit balances low.

Lenders like your debt-to-income ratio to be no higher than 36 percent.

Check your credit report. It’s never a bad idea to check your credit report, but it’s especially important to do so 60 to 90 days before you apply for a home loan. Make sure all the information is correct, and if you find any problems, notify the credit-reporting agency immediately.

Keep in mind: if you have a score of 720 or above, you’ll likely be eligible to receive a lender’s most favorable rates. Between 620 and 720, you may not receive the best rate on your loan but you should still have little trouble obtaining financing.

Below 620, however, you fall into the category of a “sub-prime” borrower, meaning your options will be more limited.

Pay down your debt. The best way to improve your credit score is to pay down outstanding debt; just shifting it to another account doesn’t solve the problem. Concentrate on high-interest debt such as credit cards - the creditor may be willing to help you set up a repayment schedule.

Apply for a smaller mortgage. Reducing the size of the mortgage you are applying for should make it easier to qualify for the home mortgage loan. Because the payments will be smaller, there is less risk for the lender and more certainty that you will be able to meet the payments.

This means you’ll have to raise a bigger down payment, however, or settle for a lower-priced home.

Conclusion: Having a poor credit score doesn’t have to prevent you from receiving a mortgage. However, lenders usually reserve their best rates for borrowers with a stable history of controlling their credit and paying their bills. Taking steps to improve these factors could save you the hassle of applying for any bad credit home loans.