Bad Credit Home Loans
We’ve seen buyers raise credit scores over 100 points by just learning to manage their debts in a responsible way. We can show you which debts are the most important to pay first, how to budget properly and prepare to buy a home.
Contact us for help! We can help you prepare to buy a home, even with bad credit. Below is some information about loan types that may benefit you.
Home Loans for Bad Credit & Approval Requirements
FHA Home Loans
A Federal Housing Administration (FHA) home loan is not actually a loan from the Housing Administration, but a loan from an independent lender backed by the FHA. Insurance of the loan by the FHA reduces the risk faced by the lender when making a loan to a subprime borrower, thus making them more likely to do so.
Due to their insured nature, FHA loans are perhaps some of the easier home loans to qualify for with bad credit, generally approving people with FICO credit scores as low as 580. However, because the lenders (not the FHA) do the actual lending, they can set their own requirements, so actual scores may vary.
Besides having looser credit requirements, FHA loans also have another giant perk: lower down payments. A borrower with a credit score of 580 and above can qualify for an FHA loan with as little as 3.5%-5% down, making it significantly easier to afford the out-of-pocket costs of buying a home.
Government Home Loans
Many of the home loans available to those with bad credit are actually government sponsored or insured in some way. These include the commonly known FHA and VA loans, as well as a variety of lesser-known programs such as the USDA housing program.
Requirements for government loans will vary based on your area, housing needs, and income, though most will be easier to qualify for than conventional private home loans.
VA Home Loans (Home Loans for Veterans)
If you are an active or retired member of the U.S. military, you may qualify for VA Loan. As with an FHA loan, a VA loan is actually made through a private lender, but the loan is insured by the VA, reducing the lender’s risk.
Benefits of VA loans are many, including the ability to buy a new home without a down payment as long as the home appraises at, or greater than, the loan amount. Borrowers are also exempt from paying private mortgage insurance premiums and early payments fees.
Rural Home Loans (USDA Loans)
If you have your heart set on a home outside the city, the U.S. Department of Agriculture (USDA) Single Family Housing program may be the best route to take. Including the Home Loan Guarantee program and the Section 502 Direct Loan Program, the USDA loans are designed for low-income homebuyers in rural areas.
In the Guaranteed Home program, the USDA provides a 90% loan guarantee to a qualifying lender to reduce the risk of the loan. As a result, lenders will extend 100% loans to their borrowers — meaning no down payment. Applicants will need to meet minimum income requirements to qualify, and can only get loans for a primary residence.
The Section 502 Direct Loan Program is designed for rural homebuyers who currently lack safe housing but cannot get a reasonable loan anywhere else. Like a Guaranteed Home loan, a 502 loan has no down payment and can only be used for a primary residence.
How to Get a Home Loan with Bad Credit
Getting a home loan when you have a bad credit score is difficult, but not impossible. Knowing your own credit situation by pulling your credit report and scores can go a long way in helping you determine the loans for which you are most qualified.
You can work to improve your chances of qualifying for a home loan by improving your credit score through credit repair or a debt management program. You are also much more likely to be approved if you provide a sizeable down payment. A down payment between 15% and 20% will give you the greatest chances of being approved.
The first step is to contact us. Find out where you stand now, and we can help you setup a game plan to buy a home.