Buying a home is a dream for millions, but for those with low credit scores it can seem like their home loan options are limited. However, if you'll remember a few key things you could find much better results from the process and actually secure a poor credit home loan that works for you – despite a low credit score. Here's what to remember.
Additionally, your loan will generally come with higher interest rates as a result of your credit. You may be able to secure a loan with poor credit, as we'll cover below, but remember that it will usually come with a higher interest rate and other terms that traditional good-credit loans don't have.
If you'll keep these 11 key points in mind, you should be able to start taking the steps now that can have a dramatic impact on your life throughout the future – by helping you secure the home loan that you need. It's important for you be realistic when shopping for low credit score home loans. Your home buying process may not be as smooth or simple as someone with perfect credit, and your interest rate may not be as low. But you do have options, and it all starts with being able to understand the reality of your situation. It's important to remember that you do have options, you just have to know what they are in order to take advantage of them. How to Qualify for a Second Chance Loan for New Home Buyers from FHA.
by Jon Silver
People with poor credit often believe that they cannot get a home loan. A few years back, this may have been the case. After the mortgage crash of 2008, lenders got much tighter with credit and would no longer issue mortgages unless you could put a lot of money down and had very good credit.
This was a natural reaction in the markets to a market crash where too many people with poor credit were given low credit score home loans with little money down. Today, things have loosened up a good deal. Many people who have average to poor credit actually have more options than in many years.
Below we highlight some of the options for people who have poor credit and want to buy a home.
Anyone with poor credit and wants a home loan should first consider getting a loan that is backed by the Federal Housing Administration. FHA mortgages are guaranteed by the US government, meaning that if you don't pay the loan, the government will reimburse the lender, or 'make the lender whole.'
This is important because the government guarantee makes it much more likely that lenders will extend loans to people with marginal credit scores.
FHA loans are available to millions of Americans who would not otherwise qualify for home loan. You may be able to get an low credit score home loan from some lenders with a credit score under 600. It will of course be easier if you have a FICO score of 640 or higher, but a lower credit score is definitely possible and still score a home loan.
Another major advantage of FHA programs is that you can often put down as little as 3.5% down. This only amounts to $7500 on a $200,000 loan, and that is very affordable to many Americans.
FHA mortgages also have flexible lending criteria as far as income and debt to income ratios. If you have poor credit, low income and higher debt, your best bet will be to apply with several FHA-approved lenders. Several may turn you down, but others may accept you.
If you are active military or are a military veteran, you really should look closely at a VA loan. A VA loan is guaranteed by the Veteran Affairs Administration. Like an FHA loan, it has very flexible lending criteria, and you can get a loan with poor credit.
The most attractive feature for VA loans is that you can get 100% financing. There are virtually no 100% financing home loans left on the market today other than VA loans.
The VA home loan for poor credit is definitely the best choice for a military veteran with low credit scores.
The USDA offers home loans for buyers with poor credit and low income who live in designated rural areas. These also are often 100% financing loans and people with low credit scores can qualify.
The only catch here is that not every property will qualify as rural under USDA guidelines. Check with USDA to see if the address of the home you want will qualify as 'rural.'
How do you know if you are a poor credit home buyer? The criteria will vary depending upon the lender, but if several of these factors below apply to you, it is most likely you are a poor credit borrower:
It is possible to get a home loan with poor credit under 640, but it is more complicated and expensive. If possible, you should try to increase your credit score before you apply for a home loan. Here's how:
Government backed loans such as FHA and VA loans are the best options today for people with poor credit who want to buy their dream home. You should shop around with several lenders today and see which ones offer FHA, USDA and VA loans.
FirstTimeHomeFinancing.com provides a news and information service by offering editorial content related to the housing and mortgage industry.
This website is not responsible for the accuracy of information or responsible for the accuracy of the rates, APR or mortgage guidelines posted by advertising banks, lenders and brokers.
All rights reserved. FirstTimeHomeFinancing.com - Copyright © 2000-2017 and Beyond