How to Get a Mortgage With Bad Credit but a Good Income

How to Get a Mortgage With Bad Credit but a Good Income?

Purchasing a home is a significant milestone in one’s life, but it can feel daunting if you have a less-than-perfect credit score. However, having a good income can greatly improve your chances of securing a mortgage, even with bad credit.

In this post, we’ll explore how to get a mortgage with bad credit but a good income—providing you with actionable steps and hope for homeownership.

Can You Buy a House with Bad Credit?

Yes, it’s possible to buy a house with bad credit, but it might be more challenging. Bad credit typically refers to a low credit score, which can result from various factors such as missed payments, defaults, or bankruptcy.

While a high credit score can unlock the best mortgage rates and terms, having bad credit doesn’t automatically disqualify you from buying a home.

Lenders consider various factors in a mortgage application, of which income stability and credit history are crucial components. However, having a good income can offset some of the negative impact of bad credit when applying for a mortgage.

What Do Lenders Look for in a Mortgage Application?

Lenders assess several factors when evaluating a mortgage application, including credit score, income, employment history, debt-to-income ratio, and down payment.

Your credit score

It reflects your creditworthiness based on past borrowing behavior. Lenders use credit scores to determine loan eligibility and interest rates. A higher credit score indicates a lower risk of default, while a bad credit score suggests the opposite. It’s crucial to maintain a good credit score by paying bills on time and keeping a low debt-to-income ratio.

Your debt-to-income (DTI) ratio

This is your total monthly debt payments divided by your gross monthly income. A low DTI ratio shows that you have enough income to cover all your debts comfortably. Lenders generally prefer a DTI ratio of 36% or less, including the mortgage.


Lenders prefer borrowers with steady, reliable income sources. They need to see that you have a stable and sufficient income to make mortgage payments. They’ll review your employment history, current job stability, and income level to determine this.

Your down payment

A larger down payment reduces the lender’s risk by lowering the loan-to-value (LTV) ratio, which is the loan amount compared to the property value. A higher LTV ratio means a higher risk for the lender, and they may charge a higher interest rate to compensate.

Your assets

Lenders want to ensure that you have enough savings and other assets to cover mortgage payments in case you face any financial difficulties. This shows that you are financially responsible and can handle the loan.

Your loan-to-value (LTV) ratio

As mentioned earlier, this is the loan amount compared to the property value. Lenders prefer a lower LTV ratio as it reduces their risk and may result in better terms for the borrower.

Your employment history and stability

Lenders look at your job history and stability to determine if you have a reliable income source. They prefer borrowers who have been employed for at least two years with the same employer. If you have a history of frequent job changes or gaps in employment, it may raise concerns for lenders.

How to Get a Mortgage With Bad Credit but a Good Income?

If you have a good income but bad credit, there are still options available for getting a mortgage. Here are some steps you can take to increase your chances of being approved:

Improve Your Credit Score

Start by checking your credit score with the three major credit bureaus – Experian, TransUnion, and Equifax. If it’s below 620, try to improve it by paying off outstanding debts and making all payments on time.

While you may be able to secure a mortgage with bad credit, it’s always a good idea to work on improving your credit score. This may take time but improving your credit score can greatly improve your chances of getting approved for a mortgage.

Focus on paying off any outstanding debts and making timely payments on your existing credit accounts. This can help you qualify for better terms in the future and potentially save you thousands of dollars.

Show Proof of Stable Income

If you have a good income, make sure to provide documentation to support it. This can include pay stubs, tax returns, and bank statements. Lenders want to see that you have a steady source of income that will allow you to make your mortgage payments on time.

If you’re self-employed or have irregular income, be prepared to provide additional documentation such as profit and loss statements or bank statements from your business account.

Consider a Government-Backed Loan

There are several government-backed loan programs that can help individuals with bad credit secure a mortgage. Government-backed loans, such as FHA loans or VA loans, have less stringent credit requirements compared to traditional mortgages. These loans are insured by the government, so lenders may be more willing to approve borrowers with lower credit scores.

However, keep in mind that these types of loans also come with their own set of qualifications and restrictions. Research the different government-backed loan options and see if you qualify for any of them. These loans can be a great option for those with lower credit scores or less traditional income sources.

Save Up for a Larger Down Payment

Another way to increase your chances of getting approved for a mortgage with bad credit is to save up for a larger down payment. A larger down payment can show lenders that you are serious about the commitment and may be less risky as a borrower.

Additionally, having a larger down payment can also help lower your monthly mortgage payments and potentially qualify you for better terms on your loan. It may take some time and discipline, but saving up for a larger down payment can greatly improve your chances of getting approved for a mortgage with bad credit.

Consider Getting a Co-Signer

If you have a trusted family member or friend with good credit, they may be willing to co-sign on the mortgage. This means that their credit will also be taken into consideration for the loan, potentially improving your chances of approval.

A co-signer essentially guarantees the loan and is responsible for making payments if you are unable to. This can assure lenders that the loan will be repaid, even if you have a lower credit score.

However, it’s important to note that co-signing on a loan is a big responsibility and should not be taken lightly. Make sure to thoroughly discuss the terms and expectations with your co-signer before moving forward.

Shop Around for Lenders

Don’t settle for the first lender who offers you a mortgage. Shop around and get quotes from multiple lenders to find the best terms for your situation. Each lender will have their own criteria and may offer different rates, so it’s important to do your research.

Consider Working with a Mortgage Broker

A mortgage broker can help match you with lenders who specialize in working with borrowers with bad credit. They may also have access to loan programs that you wouldn’t be able to find on your own. Just make sure to thoroughly research any broker before working with them.

Be Prepared for a Higher Interest Rate

It’s important to understand that with bad credit, you may be offered a higher interest rate on your mortgage. This can significantly increase your monthly payments and the overall cost of the loan.

How To Improve Your Chances of Getting a Mortgage With Bad Credit?

Improving your credit score is a gradual process, but there are strategies to enhance your mortgage application:

  • Pay down existing debt: Lowering your DTI ratio by paying off debt can make you more attractive to lenders.
  • Avoid new credit applications: Each application can temporarily lower your credit score.
  • Check for errors on your credit report: Dispute any inaccuracies that could be hurting your score.
  • Pay bills on time: Establish a consistent track record of timely payments.
  • Reduce debt: Consider debt consolidation or seeking credit counseling to help manage your debt.
  • Save for a larger down payment: Putting more money down can make you less of a risk to lenders.

Other Options for Home Financing with Bad Credit

If you’re unable to secure a traditional mortgage due to bad credit, there are alternative options to consider:

  • FHA loans: These government-backed loans are designed for borrowers with lower credit scores.
  • VA loans: If you’re a veteran, you may qualify for a VA loan with lower credit requirements.
  • USDA loans: These loans are available to low-to-moderate income borrowers in rural areas.
  • Private lenders: Some private lenders specialize in working with bad credit borrowers and may offer competitive rates.
  • Conventional loans with a co-signer: A co-signer with good credit can help you qualify for a conventional loan.

Frequently Asked Questions

1. What Do Mortgage Lenders Consider A Bad Credit Score?

Credit scores range from 300 to 850. Generally, scores below 670 are considered fair, and anything below 580 falls into the ‘bad’ category according to major credit bureaus. However, definitions of a “bad” credit score can vary among lenders.

2. Can I get a mortgage with a credit score below 500?

While it’s challenging, some lenders may consider applicants with credit scores below 500, especially if they have a good income and other compensating factors. However, you may face higher interest rates and stricter terms.

3. Will applying for multiple mortgages hurt my credit score?

Each time you apply for a mortgage, lenders perform a hard inquiry on your credit report, which can temporarily lower your credit score. However, multiple inquiries within a short period for the same purpose (e.g., mortgage shopping) are typically treated as a single inquiry.

4. Can I refinance my mortgage to improve my credit score?

Refinancing your mortgage can potentially improve your credit score if it allows you to consolidate debt or secure a lower interest rate. However, it’s essential to weigh the costs and benefits and ensure that refinancing aligns with your financial goals.

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