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 Does a Large Down Payment Offset Bad Credit?

Having bad credit can make getting a mortgage more difficult – particularly with more traditional lenders such as banks and credit unions. One strategy to help you offset having bad credit is to save up a larger down payment. Having a larger down payment helps to offset the risk that a lender is taking by granting you a mortgage – the bigger the down payment, the less risk for the lender.

Typically A-lenders will be willing to grant mortgages to a home buyers with good credit who have down payments that are as low as 5%. Those with bad credit however usually must a have a much larger down payment – 20% or more.

Advantages of Saving a Larger Down Payment

As mentioned, particularly if your credit is less than stellar you can make yourself less of a risk to prospective lenders by saving up a larger down payment. The reason for this is twofold. First, you are reducing the amount that a lender has to grant you, and second by being able to show that you can save up such a large sum, you are showing that you are responsible and serious about getting your finances back on track.

The less risky your mortgage is considered, the more potential lenders you will have competing for your business. This in turn often means that you’ll be able to get a better interest rate.

That’s not to say you’ll be able to get a rate that is as good as someone with good credit can get – because you won’t. But when we are talking about a purchase as large as a home, even a small difference can mean that you’ll save thousands over the lifetime of your mortgage.

Another benefit of saving a larger down payment is that your monthly or bi-weekly mortgage payments will be lower. This extra money that you have left over in your pocket each month can then be used to pay off other debts and help you improve your credit score.

The faster that you can improve your credit score, the sooner you’ll be able to transfer your mortgage to an A-lender and the sooner you’ll be able to reduce your interest rate even further.

Don’t Let Bad Credit Stop You From Getting a Mortgage!

If you dream of becoming a homeowner but bad credit is holding you back, call Matrix Mortgage Global today. A member of our team would be happy to further discuss this and other strategies that can help.

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