Grass grows, birds fly, the sun shines, and it’s hard to find a house in the Bay Area. That’s the stereotype at least. Sure, it can be easy to feel cynical when you face rejection after rejection, but it’s important that you don’t give up. You can find bad credit home loans in San Francisco, and today we’ll help you learn how.
Your credit score is the top thing that lenders consider when they decide whether or not to give you a San Francisco home loan. That’s because your FICO credit score, or “hard pull credit score”, measures your financial health and your history of repaying the lenders that you borrow from. It lets mortgage companies see at a glance how likely they are to make a profit on the money they lend you.
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The second most important consideration is your debt-to-income ratio, which is the amount of outstanding debt you owe divided by your total gross income. Most lenders want to see a D-I ratio of at most 40 percent. As you can see, this number is also determined in part by your credit – or more accurately, both numbers are determined by your history of credit utilization and debt payments.
In this article, we’ll show how you can get around these requirements with government programs, loan co-signers, rent-to-own contracts, and other home buying assistance in San Francisco, California.
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Where Can I Get A Loan With Bad Credit?
The following government programs – your best shot at finding a loan with bad credit in San Francisco – are offered by most money lenders. However, you should always shop around to see who’s offering the lowest interest rates, the most lenient credit and income requirements, and the best terms.
FHA loans are a type of San Francisco bad credit home loan which is insured by the Federal Housing Administration (hence the name.) The government absorbs the risk of these loan by agreeing to pay the mortgage broker back if you default on your payments. This means that mortgage lenders in San Francisco will accept applicants for the FHA program who would be rejected if they applied for a conventional home loan.
The FHA loan’s more lenient terms include no minimum credit requirement, higher debt-to-income ratios, and down payments as low as 3.5 percent of the total value of the home.
VA loans are also insured by a branch of the federal government – specifically, the Department of Veterans’ Affairs. As you may have guessed, this means that VA loans are only available to eligible veterans and members of the armed forces.
However, if you can get one of these loans, they’re arguably the best bad credit home loans in San Francisco. In addition to having no minimum credit requirements (just like FHA loans) VA loans require no down payment and no expensive private mortgage insurance. That means you’ll save thousands of dollars on your San Francisco bad credit mortgage!
Down Payment Assistance Programs
In addition to the federal programs which offer actual bad credit home loans in San Francisco, you might consider seeking out down payment assistance. Most loans (FHA and VA loans excluded, obviously) that you can get with bad credit will make up for the low credit requirements with high down payments, so getting a deferred loan to pay some of that down payment cost for you can be a big help.
The California Housing Finance Agency has some down payment programs that you can find anywhere in the state (more info on that if you click here) but here’s two programs that are specific to the city of San Francisco:
City Second Loan Program
The San Francisco Mayor’s Office of Housing and Community Development, or MOHCD, offers a down payment assistance program called the “City Second Loan” which will give you up to $375,000 to put towards a down payment on a San Francisco home. This assistance comes with no interest and no deferred payment, making it a very useful loan for bad credit even if it’s not enough to pay for the full house. You can learn more on their website here.
The MOHCD’s Down Payment Assistance Loan Program, or DALP, also provides San Francisco home buyers with bad credit with up to $375,000 in money to be used against a down payment. However, in this program the money is paid out as a silent second loan that requires monthly payments once the property has been paid off or sold to a second party. It’s still a useful program, but perhaps not as useful as the City Second Loan.
Rent To Own Options in San Francisco
If you can’t afford any of the government programs listed above, your options for a conventional home loan will be fairly limited. But what you CAN do is find a place to live now that you will have the option to buy outright later. This is known as a “rent-to-own” contract, in which you sign a standard rental contract with lower credit requirements and pay a non-refundable potential options fee up front. This fee, which is similar to a down payment on a mortgage, means that a portion of your monthly rent will be put towards the principal of the home and that once the lease has run out you can purchase the property outright if you want.
If you rebuild your credit and pay off some debt during the rental period, you’ll be able to afford an even better home and better terms on a mortgage in the future.
Cosigner on a Home Loan
If you don’t want to wait, the rent-to-own option is right out. But if your credit’s too bad for a government-insured bad credit home loan in San Francisco, are there any other options? Well, if you have a trusted friend or family member with good credit who’s willing to help you out, you can ask them to co-sign your mortgage. By co-signing the loan, they tie their credit to the property, which will give you more favorable terms and a better chance of getting accepted. But it can come with a lot of risk for the co-signer, so make sure all parties involved understand their responsibilities before anyone puts ink to paper.
First Time Buyers In San Francisco With Bad Credit
If you’re a first time home buyer in San Francisco and you have bad credit, the VA loan is your best option for finding a home. Of course, the VA loan is only available to a small portion of the San Francisco population, so our #1 bad credit home loans in San Francisco recommendation is the FHA loan program. What makes this program so good for first-time buyers is that it combines minimal credit requirements with low down payments.
If you have a bad credit score as low as 580, you will only have to pay for a 3.5 percent down payment. Those with a credit score lower than 580 can still secure one of these no credit home loans in San Francisco, but they will either have a slightly higher down payment (up to 10 percent, which is still only half of a conventional down payment) or will need to provide alternative forms of credit.
Bad Credit Home Loans In San Francisco After Bankruptcy
When you fail to pay off your mortgage, one of two things can happen. If the house is foreclosed upon, it will have a major impact on your credit score. But if you have to file for bankruptcy, it will have an even BIGGER negative impact on your credit AND it means that you will have to wait seven years before you apply for a new conventional mortgage. Who has that kind of time when you’re looking for a place to live?
Fortunately, the government programs that offer bad credit home loans in San Francisco have much kinder waiting times. FHA loans only require you to wait three years and VA loans only require you to wait two. This waiting period is the perfect time to start improving your credit score using the methods we’ll detail in the next section:
How To Improve Your Credit Score
Credit improvement is often a slow process, which is why we’ve tried to show you some loans for bad credit in San Francisco instead. If you need a place to live right now, you probably don’t have time to get your credit up to the 620 minimum required for most conventional loans.
But if you do a couple of things consistently, it will have a big impact on your credit over time. The first is just to start paying your bills on time every month. If you can afford to do this consistently, it will lead to bigger improvements on your credit than you might expect, because if you are making regular payments on all your other bills it shows lenders that you will make regular credits on your mortgage, too.
The second thing you can do to improve your credit is pay down your existing debts to lower your overall credit utilization. This improves your debt-to-income ratio, too, so it’s really a win-win situation as far as San Francisco mortgage lenders are concerned.
Now that you know a bit more about bad credit home loans in San Francisco, we hope you’ll be able to use that knowledge to find the home of your dreams. Sometimes it can feel like it’s impossible to find a good house when you have bad credit, but we know that soon you’ll be enjoying the comfort and security of a place of your own.