Your Credit Score Is Important, But What Else Do Bad Credit Mortgage Lenders Consider?

By Barbara Marquand
Mortgage Credit Problems Columnist

If you've been looking for a bad credit mortgage for a while, you know that your credit score is important. It's one of the most important things that lenders consider when they decide whether to give you a loan and to determine the loan terms. The higher the credit score, the lower the interest rate.

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But your credit score isn't the only thing a lender consider. Here's a look at the other factors that help determine whether you get refinancing or a mortgage to buy a home.

  • Income
  • Lenders want to see a stable income that provides enough money to handle the loan payments and other obligations. As a general rule of thumb, your housing expenses, including interest, principal, taxes and insurance, should be no more than 28% of your gross (before tax) monthly income.

  • Debt
  • All of your long-term debt payments should be no more than 38% of your gross monthly income. Lenders look at how you owe on credit cards and other loans, such as car and student loans.

  • Employment
  • A stable job history is a big plus. Two years at the same job is a plus. However, if you've changed jobs recently but stayed in the same industry, you should be OK, especially if you moved to a higher-level position, says the Mortgage Bankers Association. Job hopping raises a red flag, and if you are self-employed or work on commission, you have to show two years of reliable income before you can get a mortgage.

  • Down Payment or Equity
  • When buying a home, the bigger your down payment, the better your chances are for qualifying for a mortgage. The same goes for equity and your chances for refinancing.

  • Personal Assets
  • Lenders look at your assets, such as balances in checking and savings accounts, the current market value your investments, retirement funds, cash value of life insurance policies and any significant property, such as cars.

To make the loan process go smoothly, gather all the documentation necessary to back up the information for each of these categories, such as pay stubs, previous tax returns, and statements for investment, checking, savings and other accounts.

If you're ready to shop for a mortgage, enter your information on this page to get free quotes from bad credit lenders.


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