So the title of this article makes it pretty clear what we’re diving into today. Bad credit home loans or home loans for people with poor credit. As Americans we should all have a better understanding of where we are in our quest for the American Dream. Whether you’ve already owned a home for years or you’re getting ready to buy your first, this will hopefully help ease your fears. Let’s take a look at some tips for bad credit home loans, loans for bad credit and the other mortgage programs available for lower credit scores.
Bad Credit Home Loans
It’s no secret that your credit score and credit profile is a massive hurdle in purchasing a home. The days of sub-prime lending and essentially robbing new home buyers are long gone. People now cringe at the thought of a home loan application and even more so when they know their credit isn’t up-to-par. Things have certainly tightened up when it comes to poor credit and bad credit home loans. Here’s the good news; it’s still VERY possible for a borrower to buy a home with less than perfect credit. The minimum FHA credit score requirement has now dropped 60 points. Here’s a few helpful tips to prepare you for that very possible journey of bad credit home loans.
Tips For Bad Credit Home Loans
Tip 1: FICO score
Don’t be obsessed with your FICO score. Sure the score has to be at a minimum level but nowadays a lot of it has to do with the overall credit profile. The home loan application is full of questions that make up the credit profile. Things like recent late payments, recent credit inquiries and high balances on credit cards are all little things that add up to never getting that mortgage with your poor credit. It’s all about paying attention to the details. A lot of people have small things on their credit that are having a huge negative impact. Maybe a $75 medical bill or a $120 old cable bill. You’d be surprised how much that could help your credit just by paying those little things off. Another suggestion is to look into personal loans. Our partners can help get rid of some of those smaller pesky debts weighing your credit down.
Tip 2: No late payments
Do not have any late payments in the last 12 months. Late payments are never a good thing but let’s face it, at some point we all go through our hardships in life. Having late payments on your credit won’t deny your home loan but having late payments within the last 12 months will almost sure reject your home loan application.
Tip 3: The less inquiries the better
Don’t get “finance” happy. This one is really a 2 in 1 tip. Obviously when you finance or refinance something you have to have your credit pulled. So right there you’re adding an inquiry to your report. Too many of those and it starts to have a big negative impact. The bigger problem of financing purchases is you’re adding more debt to your credit profile. When purchasing a home they look at your debt to income ratio. Simply put it’s the amount of monthly obligations compared to your monthly income. The more debt the less likely a lender will approve your loan application.
Tip 4: Settle if you have to
Many of you have old debts on your credit that you just cannot afford to pay. In this scenario you’re best (and sometimes only) option is to settle. This means contacting the reporting collection agency and working out a settlement. The debts have typically been sold off multiple times. This means the debt is now worth pennies on the dollar of the original amount. You can usually settle these debts for 40%–60% of the original amount owed. These debts will get reported as “paid for lesser amount” or “settled for lesser amount”. But the important thing is the debt will now be paid and closed.
A lot of these tips are redundant to a lot of you but it’s important to refresh our memories as well as educate the younger new home buyers. While bad credit home loans are somewhat of a contradiction, with a little planning and education you can still achieve the American Dream. Talk with our network of low credit mortgage lenders today about bad credit home loan programs in your area. Please take a moment to read our article on how to get credit scores for the best mortgage rates.
How To Get A Home Loan With Bad Credit
Getting a home loan with bad credit score can be difficult, but it’s not impossible. By knowing your own unique credit situation and pulling your credit report and scores, that can go a long way in helping you determine the loans you’re qualified for.
You can always work to improve your chances of qualifying for a home loan by improving your credit scores. Some available options are credit repair or a debt management program. You are also much more likely to be approved if you provide a decent amount of down payment. When providing a down payment between 15% and 20%, that will give you the greatest chances of being approved for a mortgage.
Candidates For Bad Credit Home Loans
There’s many types of “bad credit”. For someone to have a 580 credit score, we’d typically say they have bad credit. FHA says that the minimum credit score required to obtain an FHA loan is a, you guessed it; it’s a 580. So what the FHA is essentially saying is that you can get home loans with bad credit. But where the rubber meets the road is, why is your credit score a 580? There are many different types of 580 credit scores. It all depends on your credit profile and what is making up that credit score. There’s a good 580 and there’s a bad 580.
Bad 580 Credit Score
A bad 580 credit score would be a credit profile with negative marks but also major negative marks. Major negative credit accounts would be things like foreclosures, bankruptcies, repossessions, high balance credit cards etc. Those are all considered major accounts. When your lender sees you stopped paying those accounts it shows a real lack of security and responsibility. Now of course we all know that sometimes bad things happen to good people but the fact is lenders can only go by what your credit profile says.
Good 580 Credit Score
A good 580 credit score would be just the opposite. It would be a credit profile made up of lots of little accounts. Things like medical bills, an old utility bill and other small accounts. Now of course you to also have at least a few good positive open accounts on your credit profile as well. The best way to immediately get some positive accounts on your credit is to get a couple of secured credit cards. A secured credit card is simply a credit card issued to you by a major bank but it’s secured by monetary collateral you put up. So for example if you put up $500 to get your secured credit card, the bank will then issue you a credit card with a $500 limit. You use it just like a normal credit card. Ultimately you could get your initial collateral back after 8-10 months of good payment history.
The Federal Housing Administration (FHA) actually states you can get approved for a home loan with a minimum of a 500 credit score. To get approved with credit scores in that range a borrower may be required to provide a larger down payment in some cases. It’s really all up to your lender. Your lender will actually determine the minimum credit score and minimum down payment required for approval through their underwriting.