If you’ve made it to your 30s ready to buy a home, but your 20s ruined your credit, click here to learn how to get bad credit home loans.
Getting a mortgage can seem like an insurmountable task. If you’re one of the 1/3 of Americans who have poor credit it probably feels impossible.
But even if your credit score is less than stellar, you have some options. There are many lenders and programs out there that offer bad credit home loans.
Let’s take a look at some of the ways you can still manage to get a mortgage without a shining credit score.
Bring More Cash to the Table
One of the simplest ways to qualify for a loan when you have bad credit is to bring more cash to the table.
When you can pay a higher down payment, lenders take on less risk by loaning you the remainder. Thus, they will be more willing to lend you money even if your track record isn’t amazing.
Getting that money might not be so simple. You may even have bad credit because you went through a financial rough patch that destroyed your savings. You’ve been working on building it back up again. But it takes time, especially when you’re talking about enough for a hefty down payment on a house!
One option you have is to ask friends or family to help with the payment. The lender will probably be okay with it, though they may require a letter stating that the money is a gift. They want to know that you’re going to make paying them back the priority.
Government Loans
However, bringing a large down payment to the bargaining table is not very feasible for many people. Thus, the government rides in on a white steed to save the day! …or something like that.
While they may be lacking the white steed, they do have several programs to help people with bad credit secure home loans. Let’s look at the options.
FHA Home Loans
FHA home loans are the easiest to qualify for. Depending on your credit score, you can get a house loan with as little as 3.5% down. To qualify for that, you’ll need at least a 580 credit score. In some cases, for first-time home buyers, you can get a loan with 0% down.
If your score is lower than 580 and you’re not a first-time home buyer, you can still get a loan. However, for this program, you’ll need at least a 500 credit score and you’ll have to put 10% down. If your score is even lower than 500, well, it might be time to look into working on your credit.
Remember, home loans are not an easy quick loan that don’t require credit checks and you can pay back quickly. With a home loan, you’re in it for the long haul so taking time to work on your credit is a great idea. Not only will it help secure a loan with better terms, but also you’ll start to develop better financial habits.
Compensating Factors
In addition to a big down payment, there are a number of factors that make getting an FHA loan significantly easier. These include:
- A high income
- A long time working for your employer
- A low debt-to-income ratio
- No other debts
- Your current rent payment
Basically, anything that put you in a better light finance-wise will help you qualify for this loan.
USDA Home Loans
Another option that may be available to you is a USDA home loan. You may be wondering where you’ve seen that acronym before. It might take you a second so we’ll give you a hint. It shows up a lot in the meat section at your local grocery store.
The USDA is the U.S. Department of Agriculture and they do more than inspect and stamp meat. They also offer 0% down home loans to people that live in rural areas.
Before you think that automatically excludes you, be sure to check the map. More than 90% of the country is actually eligible for this loan.
VA Home Loans
If you’re a veteran you have one more government option available to you. The VA also offers 0% down home loans.
You have to be a veteran (or veteran’s spouse) and have a reasonably good credit score to qualify. The VA doesn’t put a number on it but most lenders want to see at least a 580.
Other Considerations About Bad Credit Home Loans
Simply because you can qualify for one of these bad credit home loans, doesn’t mean you should take one on. You need to consider your financial situation first.
Can you afford to take on the responsibility of making mortgage payments? Can you wait a few more years to buy? This depends largely on the outlook of the real estate market in your area.
If you think that waiting a few years for a buyer’s market may be beneficial, do it! You can also use that time to build up a bigger down payment and work on repairing your credit.
Bigger down payments and higher credit scores almost always translate to more favorable loan terms which can save you a lot of money in the long run.
Not sure how to save money? Start by learning how to save on everyday expenses and go from there.
Ready for a Loan?
However, if the market is favorable right now, it may not be in your best interest to wait. That’s why one of these options for bad credit home loans may be a smart move for you.
At least now you know that you’re not completely limited by your bad credit score and the little bit of money you have for a down payment.
For more great home tips, be sure to check out the house section of the blog!
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