Due to creditors looking for positive credit histories, an established income and a low debt-to-income ratio, it can be difficult to receive a mortgage to purchase a home when you have bad credit. A potential buyer that meets only one or two of these criteria is unlikely to receive the mortgage they had been looking for. If that is the case, there are ways to still obtain that loan. Here are some of the steps on how to purchase a home if your credit is suffering.
First, do a full credit history check to see if there are any errors. Your credit may not be as bad as you thought if there are any. Once all of the errors have been taken care of, there is a possibility that you can be approved for the mortgage. However, if there is no error, there are still other fruitful options. If you come prepared to a lender with an exact credit history and score that is accurate, they will not have to pull your information. Just pulling your information is likely to lower your credit score, which is the last thing you want in this situation.
Perhaps the most beneficial program for those with bad credit is a government loan from the Federal Housing Administration (FHA). The FHA is able to offer loans with low interest rates in hopes of helping those with bad credit become homeowners. Another positive aspect of the program is the absence of a high down payment. These scenarios make the FHA loan optimal for bad credit buyers.
When trying to see if you qualify for an FHA loan, there are a couple of things to consider. You will need a proof of income that will ensure the FHA that you are going to have the ability to make your monthly payments. Location is the other thing to consider as the amount of each loan differs by county. The higher priced districts are less likely to have you approved for an FHA loan, so it is a limiting factor, but if you live in a more sparse area, then there is a good chance that the loan will be approved.
There is a down payment that goes with the program and is typically set at 3.5%. It may sound like a lot, but compared to the average mortgage, that is actually quite a low number. This will open up your options as a down payment that is more affordable through the government and lower monthly payments mean that there is going to be more homes to choose from.
The negatives of an FHA loan are still present, though. Even though the down payment and monthly payments are low, you will still need to have a minimum FICO credit score of 580. It could be higher in some areas, but 580 is going to be the magic number to aim for. Also, these mortgages have the same timeframe as a typical mortgage, so you can be facing 30 years in the home. This means that you will want to make sure that your job isn’t going anywhere and that you are where you want to be for quite some time.
This program has helped many Americans afford the dream of homeownership despite lacking the credit to receive a more conventional loan. This website from the United States Department of Housing and Urban Development will go over the next steps in the process of filing an application through the program. A counselor will be provided so you can go over all of the options that are going to available and how much you qualify for.