How to Buy a Home With Bad Credit
Buying a home is an exciting yet intimidating endeavor. However, having a poor credit score while looking to buy a home can make it more challenging. Fortunately, there are mortgage options for those who want a safe and secure home for their families.
Government assistance programs provide financial assistance for first time buyers to households who need to refinance their home. There are mortgage loan types that will accept credit scores below 600. Continue reading the sections below to discover which loan type is right for you.
Find Out About FHA Loans
Administered by the U.S. Department of Housing and Urban Development (HUD), the Federal Housing Administration (FHA) will insure the loan you are taking out for your future home so the lender can give a better deal. The benefits of getting an FHA loan are that you receive lower down payments, low closing costs and simpler qualifying credit.
How much of the loan you can afford will be determined by your income, credit rating, down payment and more. The general credit requirement for this type of loan is 580. If you fall below this credit score, you may still be eligible for an FHA loan, but you may pay more on your down payment. Some other benefits of this loan type is the competitive interest rate and lower fees.
Learn About USDA Loans
This loan type is administered by the U.S. Department of Agriculture (USDA) with the Rural Development section and provides loans to different types of households. There are three family loan programs: direct home loans, guaranteed loan program, and repair loans and grants. These programs are aimed towards low-income and very low-income households. This program is only eligible to households that live in rural areas with a population of 35,000.
There is no definitive credit requirement for the USDA loan. However, lenders will typically approve a loan with a score of 640. There is generally no down payment when you apply for a UDSA home loan, but applicants with assets higher than the asset limit may have to use a part of their assets.
Learn About VA Loans
If you are a veteran and are currently receiving government benefits, you may also qualify for VA home loans. If you are not currently receiving veteran’s assistance, then you must register to see if you can receive the loan. There are four types of home loans, depending on your needs and what you qualify for. The most widely used home loan is the VA-backed purchase loan. This type of loan has no down payment, better terms and interest rates than private banks and other financial institutions.
There is no minimum credit requirement for this type of home loan. However, most veterans acquire the loan at a credit score of 620 or higher. You can also get a cash out refinance loan, which allows you to take money out of your home equity to pay for other financial concerns.
About Subprime Mortgage Loans
This home loan type is meant specifically for individuals who would like to purchase a home and have poor credit. However, these types of mortgages are not funded by the government. These mortgages are offered by regular financial institutions such as private banks and mortgage lenders. Unlike the government loans, lenders will typically charge higher interest rates to compensate for the high risk of taking you as a borrower.
These mortgages are available to households who have a credit score of 600 and below. The interest rate of the mortgage will vary on these factors: credit score, the size of the down payment, the amount of late payments made, and any other penalties on the credit report of the borrower. This loan can be a last resort for those who have an extremely low credit score and want to buy a home.