Bad Credit Home Loans in Houston, TX

bad credit home loans houstonPurchasing a home is a dream come true for most people but having bad credit can often stand in the way of making that dream into a reality.

In order to become a homeowner for the first time or the seventh time, you’re going to need to know how to find bad credit home loans in Houston, TX.

The federal government and the state offer several advantageous programs to people who have a less-than-ideal credit score that disqualifies them for conventional mortgage products.

You simply have to know what they are and how to gain access to these loans to make the most of the available Houston bad credit home loans.

Did you know that your credit score affects everything you do financially? Lenders will always use this number to judge whether a client is capable of borrowing money and paying it back responsibly. The average FICO credit score is made up of these five primary areas:

  • Payment history
  • Amounts owed
  • New credit lines
  • Credit mixture
  • Length of credit history

Out of all the above categories, your payment history weighs the heaviest (35 percent) in determining your overall FICO credit score. If you consistently pay your bills late or not at all, this will damage your credit score significantly.

One of the best things you can do before you start looking for lenders and bad credit home loans in Houston, Texas is to improve your credit score.

This allows you to qualify for better terms on these bad credit home loans which ultimately saves you thousands of dollars over the course of your loan.

How Can I Fix My Bad Credit?

Once you have poor credit, most individuals get very frustrated with the idea of improving it. The scores won’t instantly change after one month of responsible money management.

Instead, your credit score will improve very incrementally over a long period of time. It’s important to be consistent in your efforts to improve your financial standing with the credit bureaus, so keep working hard even if you don’t see any immediate results.

Pay Bills on Time

What is the easiest way to make a major boost to your credit score? You need to make sure that you pay each bill on time every month to demonstrate a solid payment history.
bad credit home loan in houston tx
Lenders love to see that you can pay your bills in a timely manner because it gives them greater reassurance that you will be able to make your monthly mortgage and interest payment.

This step might seem rather trivial, but it can make a significant difference in your credit score. Not to mention, paying your bills on time saves you a lot of money in late fees.

To make sure that your bills get paid on time, make a calendar that shows when each bill is due. Enroll in autopay with the companies who offer this feature.

Enrolling in autopay makes it relatively mindless for you to ensure that all the bills get paid each and every month. The company automatically takes the funds out of your bank account with no additional action required on your part.

Alternatively, you could also set an alarm on your phone to remind you to pay the bills. Be sure to set the alarm for a time of day when you are certain to be home. This enables you to move directly to your computer to pay them.

Lower Your Debt

bad credit home loans in houston tx
Lenders always look to see exactly how much debt you have to other lenders and loan companies. They compare this to your income to determine whether you can afford a mortgage and how much you could afford.

This is known as your debt to income ratio. In most cases, this needs to be around forty percent or less but it could depend on your lender and the specific loan.

Your debt also plays a major role in your overall credit score. After payment history, the amount of money you owe plays the biggest role in determining your final score. Most experts recommend utilizing only thirty percent of your available credit lines.

In a world where most people are taught to max out their credit cards, staying well within their credit limit might be a foreign concept.

If you are well over this thirty percent mark, you should aim to reduce your overall debt before you apply for a new loan.

Not only does lowering your debt improve your credit score, but it also makes you more likely to receive a loan overall. This is one suggestion for improving your credit score that you won’t want to ignore.

How Can I Find Bad Credit Home Loans in Houston, TX?

If you know you have bad credit and still want to purchase a home, you need to know where to go in order to find the elusive bad credit home loans in Houston.

The federal government sponsors several programs that make homeownership more likely for people who have a credit score that is less than ideal.

Many of these programs feature a low interest rate, low down payment, and other features that make them extremely beneficial.

Be prepared that many lenders will look for compensating factors before issuing any of these loans as one of the Houston bad credit home loans.

Compensating factors are additional things a lender can take into consideration that might make you a more likely candidate for the loan.

In many cases, this could postpone your dreams of buying a home until you work to achieve some of these items.

One of the most common compensating factors for Houston bad credit home loans is a larger down payment.

Putting more money down toward the purchase of your new home makes lenders more at ease with granting you the financing you need for the purchase.

You build up more equity in the home very quickly and reduce your monthly mortgage payments as a result of the lowered principal balance. Some of these compensating factors provide significant perks to home buyers as well.
home loans for bad credit in houston texas

FHA Loans

The FHA loan program is one of the most well-known options for people in search of Houston home loans for bad credit. With this program, the Federal Housing Administration agrees to back loans issued by private lenders.

In the event that you were to default on the payments, this gives the lender more peace of mind. Their security results in a lot more leniency with issuing more favorable terms for the loan program.

The most sought-after feature on these home loans for bad credit in Houston, Texas is the low down payment. Buyers with a credit score of 580 or higher only need a 3.5 percent down payment.

If you have a lower credit score between 500 and 579, you will need a larger ten percent down payment as a compensating factor.

VA Loans

Much like the FHA bad credit home loans in Houston, TX, the VA loans are also backed by a sector of the federal government.

Eligible veterans and service members in Texas can qualify to receive a loan through a private lender. When the requirements are met, the loan will be backed in part by the Department of Veterans Affairs.

The VA loan is one of the most popular options that you will want to consider if you qualify. It features no down payment, low interest rates, and no private mortgage insurance.

All of these things can add up to save you substantial amounts of money compared to other Houston home loans for bad credit. There are no minimum credit scores for the VA loan.

USDA Loans

Are you interested in living in a more rural area? While you might not find the rural setting you want in the heart of Houston, you could look at the areas on its fringes.

The United States Department of Agriculture offers loans for individuals who want to purchase a property in these rural areas to encourage more development.

The only catch to this loan program is that you have to purchase an eligible property that must meet much stricter guidelines in terms of location.

However, if you find a home that qualifies, you could finance this property with no down payment. There are no minimum credit scores for USDA loans because they can be processed through manual underwriting.

This gives a real person an opportunity to sit down with your application and financial information to determine whether you are stable enough to purchase a home at this time.

What If I’m Not Ready for Bad Credit Home Loans in Houston?

Sometimes, you might not be prepared to apply for one of these bad credit home loans in Houston, TX. You might need more time or significantly more help in order to make your dreams of homeownership a reality.

If you desperately want to purchase your own home but don’t qualify for the above programs, here are a couple of routes you may want to consider.

Rent to Own

A rent to own property sounds exactly like you might imagine it would. You find a property that is listed this way and sign a lease that allows you to rent it for the next couple of years. When you sign the lease, you might be asked to pay an options fee.

This options fee is similar to a down payment, giving you the choice to purchase the home when your lease is over. Meanwhile, a portion of your monthly rent payment goes toward the cost of purchasing the home at the end of the lease.

Rent to own properties are a great option for people who can’t quite qualify for bad credit home loans in Houston, TX.

This gives you a couple more years to work on improving your credit score in order to qualify for a better loan on the property. While you work on your credit, you can still live in the house you’re going to purchase and start making it into your home.

Buy with a Cosigner

Buy with a Cosigner in houston tx
Another option if you want to buy a house now even though you don’t qualify for the bad credit home loans in Houston, TX is to find a cosigner.

A cosigner is a family member or friend who is willing to put their name on the loan for your new mortgage. Ideally, this person would have a stellar credit score that would help you to qualify for the mortgage. Their credit score might be just the boost you need to impress a lender.

Unfortunately, the lender then gains the right to pursue the money for any missed payments from your cosigner.

Your poor financial decisions and inability to pay the mortgage directly affects your cosigner’s mortgage.

Unless you are positive that you have your finances under control, this isn’t a great option in place of the other Houston bad credit home loans.

What State Programs are Available for Bad Credit Home Loans in Houston, Texas?

Apart from the programs offered by the federal government, the state of Texas has some programs to assist individuals and families with buying their own home.

They might offer education, special financing programs, or down payment assistance.

Homebuyer Assistance Program

Eligible low- to moderate-income families might be able to qualify for the Housing and Community Development Department’s Homebuyer Assistance Program.

This program grants funds to eligible individuals up to $25,000 if they meet the maximum income requirements, are willing to live in the home for at least five years, and take an education course. Homes must be located within the City of Houston.

HUD Counseling

If you are ever in need of assistance or don’t understand how the finances work for you to become eligible for a mortgage, you might want to reach out to a HUD-approved financial counselor.

They can offer advice, suggestions, and the basic education you need to make your dream into a reality for little to no cost.

Conclusion

Are you ready to find the best home loans for bad credit in Houston, Texas? You might want to start with some of these primary options to get you thinking about all of the possibilities.

The best option would be to hold off on purchasing a new home until your credit score improves. This would give you the best chance of success with a new loan. However, it might not be possible for everyone.

Frequently Asked Questions

faq bad credit home loans in houston texas
Can I use home loans for bad credit in Houston, Texas to purchase a mobile home?

Yes, you may use bad credit home loan in Houston, TX to purchase a mobile home.

Are there any first-time buyer loans for bad credit with zero down in Houston?

Yes, the VA loans and USDA loans both offer mortgages to first-time buyers with bad credit without a down payment in Houston, Texas.