While mortgage companies may be reluctant to offer mortgages to people with bad credit, it doesn’t mean that you can’t own a home. In fact, there are many mortgage programs that are designed to help those with bad credit buy a home. Before you apply for a loan, it’s important to check your options and find out how to qualify for one.
There are two main types of mortgages borrowers with poor credit can get: government-backed and private lenders. Both types have different credit requirements and income limits, so it’s a good idea to shop around for the best option.
If you’re looking for a government-backed loan, your best bet is the FHA. The FHA offers loans with a minimum credit score of 500. However, you’ll need to have a down payment of at least 3 percent. You can also find private lenders with low credit requirements, and some will even allow you to get a home loan with a 500 credit score.
Private lenders are more flexible than government-backed programs. Some offer no down payment or mortgage insurance requirements, and some will give you 100% financing. Those that do require down payments can have lower rates. For example, Flagstar Bank offers down payment assistance.
Depending on your situation, a co-borrower can help you get approved. This can reduce your debt-to-income ratio and make it easier to qualify for a mortgage. Co-borrowers can also boost your credit score. A co-signer is a trusted friend or family member who agrees to become a co-signer.
Private lenders can be more expensive than government-backed programs, but they can also offer more flexible loan requirements. Most private lenders will not ask for a certain credit score, and they’ll also be more willing to consider your income and savings. They can also make sure that you have the money to pay for your down payment.
Some mortgage lenders also allow you to limit the amount of money that they can loan you. You can choose to avoid paying any down payment on your home, or you can choose to have a down payment as low as 3%. That can save you thousands of dollars in interest costs.
You should also talk to a loan advisor before deciding on a home loan. He or she can run scenarios through the various providers and help you decide which one will suit you best. Even if you don’t find a loan program that works for you, your advisor can provide a free consultation that will explain the process and help you choose the best option.
You can also try to repair your credit before applying for a mortgage. Credit counseling services can help you improve your credit, and your lender can find the most cost-effective ways to raise your score. By repairing your credit, you can have a better chance of being approved for a mortgage and will be able to afford a smaller down payment.
Finally, you can refinance your current loan. Refinancing can be a great way to save hundreds of dollars in monthly payments.