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3 Solutions for Bad Credit Home Loans


paperfree Aditi Bansal

Updated on Friday, May 05, 2017

Accessing a bad credit home loan is quite challenging, however, you can find alternatives in the market to help you become a homeowner.

tags  #Bad Credit Home Loans  #Assessment Criteria #

 

The introduction of bad credit loans will give Americans who could not access home loans new opportunities. Previously, people with a credit score of less than 600 failed to qualify for home loans. And when they did, the interest rates and down payment requirements were too high. In 2013, only one in 500 borrowers with bad credit goat a loan approval compared to 2005 where one in 7 people with a bad credit score got a home loan approval.

Some of the factors to help you identify if you fall in the bad credit homes loans category include:

  • A low credit score (below 620)
  • More than one late mortgage payments or a 60-day delinquency in the previous year
  • Bankruptcy or foreclosure in the last 24 months
  • A 50 percent or more debt to income ratio
Luckily, lenders are now more flexible. Some of the options to consider if you fall into this category include:

FHA Loans

With an FHA loan, mortgage lenders can give you money and if you fail to pay, the Federal Housing Administration (FHA) will reimburse the lender, which gives lenders confidence when working with people with average or poor credit scores. You can qualify for FHA loans in you have a credit score of 580 and if you can raise at least 3.5 percent of the down payment. Note that even with a bad credit home loan, you must pay the insurance on the mortgage both upfront and thereafter on an annual basis. While the process to get an FHA loan is quite difficult, your bad credit home loan options are quite limited.

USDA Supported Loans

The USDA loans are accessible to prospective homeowners in rural areas, with options for 100 percent financing for medium and low-income earners. People looking to buy in some suburbs can also qualify for USDA loans.

Just like FHA loans, USDA loans offer a flexible income and credit score assessment criteria. USDA also offers competitive interest rates and caters for the closing cost, while allowing you to use part of the money for repairs.

VA Bad credit home loans

The VA loan is available to veterans and active military, with the backing of the Department of Veteran Affairs, created to encourage lenders to extend mortgages to military members with a moderate or lower income. The VA guarantees 100 percent of the loan, and they have no minimum credit score criteria. The VA program does not require a down payment or mortgage insurance.

Understanding Mortgages

Fannie Mae and Freddie Mac provide an automated underwriting software, which looks at the credit score, debts and income and automatically approves a loan. If you have a poor credit score, your lender will use manual underwriting. Some of the factors your lender will consider in the manual process include cash reserves and/or your rent payments in the last year.

Considerations:

Some of the factors that may improve your access to loans with bad credit include:

  • Timely payment of bills, including rent in the last year before your mortgage application
  • A clean credit history and timely payment of bills for at least two years to qualify for a higher interest bad credit home loan

Conclusion:

People with bad home loan credits now have more options to access mortgages. Often, your approval may take time even with FHA approved lenders. Take your time and shop around until you find a suitable option.



This page with a focus on Bad Credit Home Loans, Assessment Criteria was shared by Aditi Bansal.

 
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