Mortgage Options for Those With Bad Credit

If you have bad credit, you may be worried about how you will afford a new home. However, there is a solution designed for people in your exact situation. The Federal Housing Authority, FHA, is a government agency that backs mortgages and helps prospective homeowners get bad credit mortgages that are government-insured. So, if you want to buy a home that meets your standards and have less than perfect credit, keep reading.

Compensating Factors for Bad Credit

You can overcome a poor credit rating by emphasizing that there are factors that show you in a favorable light. For instance, if you fell behind, you’ll need to show the reasons behind your financial hardship and how you recovered.

Those re-establishing their credit can show their record of recent payments. If you have poor credit, the loan goes typically through manual underwriting. That means a real person will comb through your application, including the additional information you provide. This improves your chances for approval.

There are many factors that can improve your chances of getting a bad credit loan, including:

  • 10% or greater downpayment
  • High income
  • Low debt-to-income ratio
  • Large cash reserves
  • No outstanding debt
  • Significant tenure with current employer
  • Proof of comparable rent payments

Establish as many of the above circumstances increases your chances of qualifying for an FHA loan.

Bad Credit Mortgages for First-Time Homebuyers

FHA loans offer low down payments and credit requirements. This means that you are more likely to qualify for them versus a conventional loan. If you have parents or other relatives who want to help you, an FHA loan makes it easy to use a gift as a down payment. In fact, the FHA allows up to 100% of the down payment to come from a gift.

Down-Payment Assistance and Grants

First-time buyers can sometimes buy a house with no down payment. Check out the various grants and down payment assistance programs available on the HUD website.

VA Home Loans

Veterans may be able to get a VA home loan. VA loans offer many perks to first-time buyers, including no mortgage insurance and no money down. The VA doesn’t require a minimum credit score. However, most lenders want to see FICO scores of 620 or higher. Although some VA lenders may accept a 580-credit score.

USDA Rural Development Loans

The U.S. Department of Agriculture offers USDA home loans for houses in rural areas. These rural loans are earmarked for families with low-to-moderate-income. This doesn’t mean you have to live on a farm or out in the middle of the country. To the contrary, 90% of land in the country is USDA eligible.

USDA loans offer 100% financing. Since you don’t have a down payment, the program requires a higher credit rating than FHA loans. Most lenders ask for a 640-credit score to qualify for a USDA home loan.

If you qualify for a VA, USDA or FHA loan, there’s a program out there for you. Talking to an experienced loan officer can point you in the right direction and help you get the home you deserve.