If you have poor credit then you know that getting approved for a mortgage or refinance loan can be very
Don’t lose hope.
There are home loan programs available for people with bad credit.
In this article we are going to discuss some of these low credit loan programs and give you some tips to increasing your credit score so you can get approved for that home loan quickly.
FHA Loans – The Low Credit Score Mortgage
When you hear the phrase “bad credit home loans” think FHA Loans.
FHA loans are a type of Government loan program for people with bad credit. They are one of the most popular type of mortgage used today. This is because they have more flexible credit and downpayment requirements, making FHA loans easier to qualify for than traditional mortgages.
You don’t need a 620 Credit Score to Qualify for a Mortgage
Wouldn’t it be great to get pre-approved for a home loan with a credit score under 600?
Well FHA only requires a 500 score to qualify. If you’re score is between 500-579 you meet the minimum standard for FHA with a 10% downpayment. However, actually getting a approved with a credit score in this range is extremely difficult.
The loan process when you have a score under 580 is going to be extremely difficult and very nerve-racking. You could end up losing a lot of money too. Many times these loans don’t close.
Instead, you should work on fixing your credit before you apply for a mortgage. In some cases your can improve your credit score fairly quickly and be able to apply in a month or two.
If you have a 580 Credit Score you can Qualify for a Mortgage
To qualify for an FHA loan you need a 580 or higher credit score. FHA will only need a 3.5% down payment. This is why FHA loans are perfect for people with bad credit and first time home buyers.
Some of the benefits of FHA loans
- Many nationwide FHA lenders
- Easier to qualify for than traditional mortgages
- 580+ credit score qualifies
- Low 3.5% downpayment
- Down payment can be a gift from a friend or family member
- Seller can pay up to 6% of the closing costs
- Lower interest rates than conventional loans
VA Loans Have No Minimum Credit Score
Veterans that struggle with low credit could qualify for a VA loan. Technically, these home loans do not have a credit score minimum requirement. However, lenders do set their own credit score standards.
Typically the minimum credit score for VA home loans is 620. Some lenders are able to work with borrowers with scores below 620 in certain cases. You should check with a VA lender to determine if you qualify.
VA Loan Benefits
- Low credit score requirement
- NO down payment
- Lower interest rates than traditional mortgages
- NO private mortgage insurance (MIP)
- Low closing costs
- Higher allowed debt-to-income ratios
Bad Credit Mortgage Refinance Programs
You need to know about these 2 programs if you have bad credit and want to refinance your home.
The HARP Program
HARP stands for The Home Affordable Refinance Program. Obama created HARP to help home owners who are upside down on their mortgage or have little equity. You can qualify for the HARP refinance program even if you have bad credit. You do need to have a conventional mortgage with Fannie Mae or Freddie Mac to qualify.
VA and FHA Streamline Refinance
If you have a VA, FHA, or USDA loan you can do a streamline refinance to get a lower rate and low your mortgage payments. The great thing about a streamline refinance is that they don’t require a credit check, so you can have poor credit and still refinance your mortgage.
Candidates for Bad Credit Mortgage Loans
Lenders will want to see that you have got out of the rut that lead to your poor credit score. You should be able to show no late payments over the last 12 months.
A single late payment may be okay, but if you have multiple late payments and collection accounts that are relatively new. You really should work on your credit and save up for your down payment until your recent credit history looks better.
Here are some basic guidelines to use to see if you’re a candidate
- 580 or higher credit score
- No late payments in the past year.
- No more than one 30 day late payment on any account in the past 12 months.
- No bankruptcies, short sales or foreclosures in the past 36 months.
- Debt to income ratio under 43%
- Have at least 3.5% of the loan amount in savings
- 2 years of stable employment history.
- Provable income with W’2’s, Tax Returns and paycheck stubs.
First-time Home Buyer Grants and Down Payment Assistance
There are various first time home buyer grants and assistance programs on the HUD website. Visit your local county website to see if they offer down payment assistance or grants for first time home buyers.
Finding low credit mortgage lenders
There are many FHA lenders throughout the country, most private lenders offer FHA loans. Just because one mortgage company denies you, you shouldn’t lose hope. You can always apply again with other lenders.
If you have credit issues there may be ways to improve your credit scores quickly. Sometimes working on increasing your credit score before applying for a mortgage can be a good option. Qualifying for a mortgage with a low credit score is not an easy task. There are also drawbacks to consider, like high rates and closing costs. Make sure you weigh the pros and cons of a subprime mortgage.
Does poor credit scores mean higher mortgage rates?
Yes, your interest will be higher if you have a lower credit score. This is because you present a higher risk to the lender. Because the lender is taking on more risk, they charge higher fees. Based on current mortgage rates, a borrower with poor credit (580-600) will have an interest rate of approximately 5.25%, while a borrower with good credit (660+) will have an interest rate of approximately 4.75%.
For example: On a $200,000 home that equals a difference of roughly $85 per month. Although if you wait at least 12 months after you close on your FHA loan, you can do an FHA streamline loan and get a more competitive rate.
What is considered a low credit score?
The definition of poor credit will vary depending on who you ask. Credit scores measure the probability a borrower will repay the loan without going 90 days late. The higher your credit score is, the lower your risk of default. Having good credit means getting approved more often and receiving lower interest rate on loans and credit cards.
Your FICO credit score is measured on a scale between 350-850. The average credit score in America is 680, which is considered a good credit score. Generally, a low credit score is anything below 620.
- Bad Credit = 579 or lower
- Poor Credit = 580-619
- Fair Credit = 620-679
- Good Credit = 680-749
- Excellent Credit = 750 or higher
Check you Credit Report
It’s important to know what’s on your credit report. There may be some errors that are having a negative impact on your credit score. Get a copy of your credit report and scores for free at Credit Karma and Credit Sesame. Go through each credit report and highlight any negative items you see. Make sure everything looks accurate on your report. Contact the credit bureaus to dispute any errors you find.
You can dispute any item on your credit report. The Credit bureau has 30 days to investigate the accuracy of the item you disputed, if they fail to validate it they must remove it. You can file a dispute with all three credit bureaus by mail, phone, or online. Here are the addresses, phone numbers, and URL’s to dispute directly with all 3 credit bureaus.
Consumer Dispute Center
P.O. Box 2000
Chester, PA 19016
Phone: 800-916-8800 – 8am-11pm EST
P.O. Box 4500
Allen, TX 75013
Phone: (714) 830-7000
Equifax Information Services LLC
P.O. Box 740256
Atlanta, GA 30374
Phone: (800) 846-5279
5 Things you can do to improve your score fast
Here are some things you can do to improve your credit scores in a hurry. The first thing you need to do is stay up to date on all of your payments. Having a single 30 day late payment could affect your credit score by as much as 100 points. If you are forgetful, then set up all your accounts on an automatic bill pay so you will never forget again.
- Pay down your credit card balances
- Hold off on applying for new credit
- Keep your accounts open
- Become an authorized user
- Negotiate a “pay for delete” on collection accounts
Apply for a low credit score mortgage or fix your credit
If you have a credit score above 580 and have good credit history in the past 12 months, there’s a good chance you can get approved for a mortgage. You should speak to one our lenders to see if you can qualify.
If you need to work on your credit before you can qualify for a mortgage. Most people can improve their score by 15-75 points quickly by following the advice in this article. Either way, getting approved for a mortgage with low credit scores is possible, if not today, then in the near future.