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If you are interested in purchasing a home but have bad credit, you may be relieved to hear that there are a few programs that mortgage lenders can offer borrowers with bad credit. You will not receive the terms and rates that someone with excellent credit would get. However, you will be able to enter the real estate market now and not have to wait until your credit has improved.
The Federal Housing Administration (FHA) has become increasingly popular since the subprime meltdown. They have loosened their requirements, and it can be quite simple to obtain a 30-year fixed rate mortgage from them. You can have a credit score of 580 and still qualify. With a score of 580 to 620, you will need 10 percent down. Those with a higher score need only 3 percent down. That is another advantage of the FHA loan. You don't need a lot of cash down and can get 6 percent in seller concessions. If your credit is poor, but you have steady income and employment, you may still qualify. If you had a bankruptcy or a foreclosure, you need to wait only two to three years to obtain an FHA loan.
Hard Money Lender
Hard money lenders will take a borrower with any credit score. The reason is that the borrower must compensate the low score with a very large down payment. Hard money lenders are often used for investment properties that will quickly be flipped or sold. Yet they can be used for primary residences too. If you have bad credit, but you have a lot of cash on hand, this may be an option for you. The loans often carry a high interest rate, though.
In today's market, you may still be able to get an adjustable-rate mortgage (ARM) or interest-only mortgage with poor credit. You will have a higher interest rate than a conforming loan. You may also be asked for more money down in order to qualify. Be careful with taking out a mortgage with bad terms and assuming you can refinance later. If your credit is still in bad shape later, you may not qualify for a refinance.
See a Broker
Instead of contacting a local bank or credit union, you can usually get a better loan through a broker. They have options for every type of borrower and have access to countless banks and programs. If there is a program for you, a broker would know about it, but a small local bank probably would not.
Raise Your Score
If you can't get a mortgage using these tips, try working on your credit for a few months and applying again. You can raise your score quickly by paying on time every month for six months, paying down debt and not applying for any new credit or loans.
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