You are most likely reading this because your credit scores are low and you need a bad credit mortgage. There are a lot of reasons why you may have poor credit but what is most important now is how we can help you to get a bad credit home loan by finding the best Bad Credit Mortgage Lenders in your area by completing the request quote page. We have done all of the lender research already so let us help you for free.
If you have some time, the best option would be to learn how to improve your credit score. Reading through that page will help you to improve your credit score on your own. It will also show you wher you can check your credit score to know exactly where you stand. This will open up the most loan options for you and will also help you to get the best mortgage rate. Meanwhile, what is “bad credit”? From a mortgage perspective, any score below 620 is considered to be bad credit and this is when it becomes more difficult to find financing.
If you do not have time to improve your credit scores, then we will share how you can find a bad credit mortgage right now.
Up until 2008, finding bad credit mortgages was extremely easy. In fact, you could get a mortgage with bad credit and without having to document your income. Those days are over but there are still options for you. That being said, it is not that easy to find a bad credit mortgage lender but that is where we come in.
Quaifying For a Bad Credit Mortgage With a Low Credit Score
Here are some of the compensating factors that will come into play when trying to qualify for a bad credit home loan.
- Larger Down Payment – This helps to reduce the risk for the lenders. It shows more of a commitment on your part and provides a safety net in the event of a foreclosure. So, if the loan progam you are interested requires only 10% down but you are able to put down 25%, then that is a huge positive for you.
- High Income Stream – This helps because it tells the lender that although your credit scores are bad, you DO have the money to make the payments. One of the key elements when underwriting a loan is determining a borrower’s ability to pay so this is important. If you are self employed and you cannot fully document your income, then you should read about stated income loans.
- Low Debt to Income Ratios – This means that your monthly obligations (all payments on your credit report + your new proposed mortgage payments) divided into your gross monthly income is less than 40%.
- Cash Reserves – After your down payment and closing costs, the more months of reserves you have the better off you are. Knowing that you have a minimim of 6 months of reserves is a positive compensating factor.
- Steady Employment History – Working in the same place for a long time is another positive thing to the lenders. Conversely, if it looks like you are constantly bouncing from one job to the next or you have periods of unemployment, then this could be a problem.
- Rental Payment History – Showing that you have a good rental payment history by providing a letter from your landlord is a positive thing. In addition, if your new proposed mortgage payment is similar to what you were paying in rent, that is also a positive. Lenders want to avoid “payment shock” which is when you go from one monthly payment to a much larger monthly payment in your new mortgage.
Bad Credit Mortgage Progams and Options
Here are the programs that may fit your situation. After talking to one of our bad credit lenders, you and the qualified loan professional can decide what makes the most sense.
Bad Credit FHA Loans – An FHA loan is what we would suggest first. It would provide an opportunity to qualify with a bad credit score while also maintaining a reasonable interest rate. Typically, an FHA loan would require only a 3.5% down payment for scores as low as 580. However, if your score is 500-579, then you will need a 10% down payment. Keep in mind that although those are the standard credit score requirements, not many lenders offer FHA loans for scores less than 580. However, we have connected with the lenders who do so let us help you. Read more about FHA Mortgages and FHA Mortgage Lenders.
VA Home Loans – Veterans may be able to qualify for a VA home loan. This is just one of the many well deserved benefits of serving our country. Although the Veterans Administration does not have a credit score requirement, many lenders impose their own credit score minimum of 620 or more. In the past, we have found a few lenders who will go as low as a 580 credit score.
USDA Rural Development Loans – STOP! This is not just for farm country living. More than 90% of the US is considered to be a USDA eligible rural location. Therefore, it would be a good idea to check your location for USDA Eligibility. You can find a USDA home loan with 100% financing. However, that also comes with a higher credit score requirement of a 640 minimum. That increased score requirement is in place due to the increased risk associated with a zero down mortgage.
HARP – Home Affordable Refinance Progam – This is a refinance program that was put in place after the mortgage meltdown of 2008 to help homeowners whose homes are “under water” (owe more than what the home is worth). This enables them to refinance to have a lower payment and interest rate.
FHA Streamline Refinance Mortgage – This program is eligible for individuals who already have an FHA mortgage on their homes. The FHA streamline refinance program does not require a credit check or income verification. It is important though for you to have been making payments on time with your existing FHA mortgage.
Down Payment Assistance – Grants – There is a chance that you may be eligible for a Federal Grant or down payment assistance. That information resides on the HUD assistance programs page for more info. Just click on your state and then “assistance programs”. Lots to read there and you may need to make some phone calls.
Down Payment Gifts – If you do not have the funds for a down payment, there are a few programs including FHA will allow for you to receive the funds needed as a “gift” from a relative. They would only need for you to provide a gift letter and the funds will neeed to be transferred to you prior to closing.
Mortgage After Foreclosure or Bankruptcy – We get a lot of requests from people who have had a bankruptcy or foreclosure. They want to purchase a home or refinance a current mortgage but do not know how to approach it. The reality is that if you had a bankruptcy or foreclosure then your credit scores are probably going to be low. That means, you are most likely looking at a government loan such as an FHA mortgage. For a government loan, there is a 3 year waiting period before you can qualify for that loan. However, you can apply for the FHA back to work program which shortens the waiting period to just 12 months for those who qualify. We suggest speaking with one of our FHA lenders to see if you do qualify.
FAQ About Bad Credit Mortgages or Bad Credit Home Loans
Do I Need to Improve My Credit Score First?
No, you don’t have to improve your credit score before qualifying for a bad credit mortgage. However, doing so will make it easier and will most likely result in a better interest rate.
Are There Flexible Down Payment Options For People With Bad Credit?
Yes, you can find some of the loan programs referenced above. FHA, USDA, etc. Anywhere from 10% down to ZERO down.
Can First Time Home Buyers Find a Bad Credit Mortgage?
Yes, the programs outlined above apply for first time home buyers with the exception of the FHA streamline refinance because… well you need to be a homeowner first before you can refinance!
Are There Bad Credit Mortgages For Those With a Credit Score Under 600?
Yes, there are programs and the one that may make the most sense would be an FHA loan. However, the lower your credit score, the higher the down payment requirement.
Had a Bankruptcy?
Have late payments on your existing mortgage?
Want to consolidate your bills into one low monthly payment?
Need relief from the harassing calls of creditors?
Need extra cash? (use it for home improvements, education, child support, or a new car).
Temporarily unemployed, in between jobs?
If you answered “yes” to any of these questions or if your credit score is less than 620 then we can help you!
Please take a moment to complete the quick quote and a professional loan officer will provide you with a free personal consultation to see what makes the most sense for you.
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