Credit problems can happen for a variety of reasons, not all of them due to mismanagement or poor spending habits. Unfortunately, the consequences are the same — difficulties obtaining a loan to purchase virtually anything. But, all hope is not lost. There are mortgage loans available for people with bad credit. Better Rate Mortgage has mortgage loan experts who can help you locate the best mortgage to fit your needs, even if you have less-than-favorable credit.
The nature of a mortgage loan is already in your favor as a buyer with poor credit. Mortgage loans are guaranteed by the property you are purchasing. And, in most cases, these properties appreciate in value over time, making it an excellent risk for lending, even if you are not. For this reason, many lenders are willing to carry mortgages on families with poor credit.
What is Bad Credit?
“Bad,” like any other term, is relative. Of course, with credit scores, numeric values represent your score that is based on a number of factors. Basically, a higher credit score is always better than a lower one. Obviously, the higher your score, the better loan terms you are likely to receive. Here are the different levels of credit scores:
- Exceptional: 800 – 850
- Very Good: 740 – 799
- Good: 670-739
- Fair: 580 – 699
- Poor: 300 – 579
Borrowers in the “Exceptional” category can enjoy the best interest rates, beneficial offers, and other significant perks from lenders. Those in the “Very Good” and “Good” categories can also receive favorable loan terms. However, some lenders will carry mortgages for borrowers with credit scores beginning at 500.
Let’s take a look at some of the better types of mortgage loans available to people with bad credit. A loan expert from Better Rate Mortgage can explain more about each type of loan.
FHA Mortgage Loan
FHA mortgage loans are backed by the Federal Housing Administration and have the absolute lowest credit score requirements of any major home loan program. Here’s the basics:
- Credit scores of 580 or higher only require 3.5% down payment.
- Credit scores from 500-579 can still qualify with at least a 10% down payment.
- Fees for FHA loans are NOT based on credit scores, but are flat.
- Even poor credit can obtain low interest rates, especially compared to conventional loans.
VA Mortgage Loan
VA mortgage loans are available to veterans, active service members, and some eligible spouses. These loans are backed by the Department of Veterans Affairs, and have some significant benefits, even to those with poor credit.
- No down payment is required.
- No mortgage insurance is required.
- Low interest rates.
- No minimum credit score, although lenders themselves often impose a minimum score of at least 580-620.
- No risk-based fee pricing.
USDA Mortgage Loan
USDA mortgage loans backed by the U.S. Department of Agriculture are popular loans for people seeking to purchase a home in rural areas.
- Home must be located in a qualified rural area.
- Minimum credit scores vary by lender, but are typically around 640.
- No down payment is required.
- There are income restrictions for obtaining these loans
Conventional Mortgage Loans
Conventional mortgage loans that are not backed by some government program are still an available option for some borrowers.
- Higher interest rates
- Risk-based loan fees
- Most conventional lenders require a minimum score of 620.
- Different down payment amounts are required for varying credit scores.
Freddie Mac Home Possible Mortgage Loan
This is a first-time buyer program under Freddie Mac, a government-sponsored enterprise that helps lenders fund mortgages. It features:
- Down payment of only 3% is possible.
- Reduced mortgage insurance rates.
- Most lenders require at least a 620 credit score.
- Only first-time home buyers qualify.
Fannie Mae HomeReady Mortgage Loan
HomeReady is a program for low-to-moderate income buyers under Fannie Mae, another government-sponsored enterprise that helps with mortgage lending. It differs somewhat from Feddie Mac:
- Borrowers do not have to be first-time buyers.
- Expanded eligibility in low-income communities.
- Only a 3% down payment is required.
- DTI ratio can include income from everyone living in the household.
- Most lenders require a credit score of at least 620.
We Help with Mortgage Loans for People with Bad Credit!
Better Rate Mortgage has helped many people who were surprised that they could qualify for an attractive mortgage loan. One of our loan experts can explain more about the programs and loans available and what is necessary for you to qualify. Don’t give up on your dream of home ownership without first talking with us at Better Rate Mortgage! Take our Home Purchase Qualifier now and speak with a loan expert today!
