A credit score is a crucial factor when it comes to determining whether the lender would process funds for your dream home. However, a bad credit score can affect your prospects negatively and delay you from owning a home. The good news is that even with a bad credit score, you can work towards your ambition of having a home. You can apply for home loans from these organizations.
First-Time Homebuyers with Poor Credit by FHA (Federal Housing Administration)
This is one of the most popular bad credit home loans for first-time homebuyers. As compared to a conventional home loan, these are easier to qualify for. You just need a stable employment status and pay only 3% of the total loan as a down-payment. Moreover, the FHA permits gift funds for down-payment support, i.e., the entire down payment can be a gift from a family member or a close friend. They also have competitive interest rates for people looking for a home loan with bad credit.
Grants and down-payment assistance
If no bank is accepting your home loan application due to the bad credit, then you can look up for federal grants or down-payment assistance programs offered by the Department of Housing and Urban Development. To find these programs, you need to log on to HUD’s official website that lists bad credit home loan programs according to every city, county, and state.
VA home loans
If you’re a veteran requiring funds for buying a home, then you can apply for VA (Veteran Administration) home loans. These bad credit home loans for veterans involve multiple benefits such as no down-payment and mortgage insurance. It doesn’t have a minimum credit score requirement. Therefore, the credit score criteria will vary across lenders.
USDA Rural Development Loans
The Department of Agriculture offers the home loans programs to individuals based in rural parts of the country to encourage home ownership. These funds are targeted toward people who have low to moderate annual income. Since there are no down-payments required for USDA-funded homes, the credit score criteria might be slightly higher. However, you can apply for this home loan after improving your credit score. The minimum credit score to stand eligible for the USDA home loan is 640.
Refinancing options for people with bad credit
There are also numerous programs for people who want to refinance their homes but are bound by bad credit scores. Some of these options are as follows.
- Home Affordable Refinance Program (HARP)
- FHA Streamline Refinance for people who have opted for FHA home loans
- Home Equity Loan
- Home Equity Line of Credit (HELOC)
Popular private lenders for bad credit home loans
If you wish to get a home loan for a private lender, then here are some companies you should look at:
- Quicken Loans
- Citi Mortgage
- Carrington Mortgage
- Home Bridge Financial Services
- JG. Wentworth Home Lending
- New American Funding
- Network Capital Funding Corporation
- Wells Fargo Home Mortgage
- Bank of America
Not just for bad credit home loans, these lenders are great, if you want a range of options and a reliable customer care service.
Buying your dream house can be achieved once you start repairing your credit score; but how? Here are some useful tips that can help improve your overall credit score.
- Make timely payments
The first aspect that the lenders would look for would be your credit payment history. If your payment has been made well within the due date and if you have been on the consistent side of the pyramid, there is nothing to fear of! Rest assured, you will have a good credit score. However, if that’s not the case, ensure that you start paying off the debt at regular intervals. Even the non-payment of $50 bill can act against you. Therefore, avoid being careless, build a strong credit score. Ensure that you do not have any outstanding amounts or delay in payment for the last 12 months. A resilient attitude from your side will also encourage the lenders to approve your home loan.
- Maintain a good debt-to-income ratio
To simply put this across, it is the ratio between how much you earn and how much you pay in terms of bills, loans, and personal monthly expenses. The more loans you have, the more the debt to income ratio will be. This means that that the chances of getting a new home loan are weak. Therefore, don’t use your credit card for impulse purchases, only use it for buying essential items or during the time of emergencies to sustain a healthy debt-to-income ratio.
- Have a word with your mortgage lender about your credit scores
Your bad credit score could be the result of financial challenges in the past or credit. Explaining the mortgage lender your situation can help you secure a home loan even with bad credit scores. However, just ensure that you have all the evidence that justifies your bad credit.