The American Dream always begins with home ownership. Finding a lender with the lowest rates for your home loan can depend on many things such as your credit history, the size of your downpayment, your employment history, and the total amount of debt you owe.
The bottom line is, we all want a home. However, some of us have bad credit and may feel unable to ever achieve homeownership. For those individuals, it is necessary to look into alternative options for getting that home loan.
Popular Home Loan Options for Those with Bad Credit
A loan for a home given to someone with bad credit is commonly known as a “sub-prime” mortgage. Borrowers of this type of loan do not have the high credit score that some others have. Traditional lenders may balk at the idea of lending to those with credit that is not of the top quality, but there are always providers out there willing to take a chance on someone with less than perfect credit. Another avenue that some choose to take is government programs such as the FHA loan program for those with poor credit. The FHA program accepts those with a credit score as low as 500. They do review the individual circumstances of the borrower in making their determinations, but for the most part, this is a great resource for those with poor credit.
Understanding What Potential Mortgage Loan Lenders Will Look For
Educate yourself on exactly what it is that mortgage loan lenders will be looking at from you as a potential client. There are numerous things that lenders look at but the major ones include –
- How significant of an initial down payment are you able to make
- How healthy is your credit score at this time
- What is your current situation in regard to other debts
- Do you have a strong employment history to back you up
- Demonstration that your current level of income can support a mortgage loan
These are all of the major areas that lenders take into consideration in regard to deciding to approve a mortgage loan for an applicant. In areas such as your down payment, the more money that you have to put down up front, the better off you will be in your application process. You can look at your credit score in the same way. The healthier your overall credit score, the more likely that a lending institution will be to provide you with a mortgage loan. Lenders certainly will be interested in knowing where you stand in regard to your current debt situation with other outstanding payments. As one would expect, they are also going to want to see that you have a long and solid history of employment and that your current level of income is sufficient to be able to take on a loan of this magnitude.
How Having Mortgage Debt Can Help Increase Your Credit Score
In order to know where you stand with credit, to begin with, it is important to review your credit score. Some people do not ever check their credit score, and this is a serious mistake. Your credit score is what every lender will look at before making a lending decision. If you have questionable credit, you may not be able to obtain a loan for anything that you require in life. It is also important to check because it can be an early indicator of identity theft. There are three major credit reporting bureaus in the United States.
Check Your Credit Before Applying
They are Experian, TransUnion, and Equifax. Their job is to collect credit data and compile a report and score on each individual with a credit history. Government rules stipulate that an individual is entitled to view their report for free once per year. Since there are three bureaus, you can space this out to review the score once every four months for free. Bad credit scores are nothing to ignore, but the good news is that paying your loan on time is actually a great way to raise your credit score. Having a home loan on your credit report diversifies your credit and raises your FICO even if it is the biggest debt you owe, credit bureaus consider this debt to be good debt. Additionally, there are a number of free credit score checking websites. The accuracy of these websites is not always perfect, but they have gotten significantly better over the years. Best credit monitoring sources are as follow:
- Credit Sesame
- Credit Karma
Programs That Help With Acquiring A Mortgage Loan
A Major question that borrowers should be asking themselves is available programs to help with home loans. It is always good to have that extra support, particularly if you are facing other difficulties as bad credit. There are some outstanding programs out there designed to help borrowers who are applying for a mortgage loan to purchase a home. Some of the top programs include –
- Good Neighbor Next Door
These programs are well worth checking out. It is a difficult enough process to buy a home and deal with all of the paperwork that is involved. These are all very renowned programs that help first-time buyers.
Down Payment Facts For Your Mortgage Loan
Although a person with poor credit may apply for and even qualify for a home loan, they should be prepared to shell out some money for the privilege. The reality is that home loans are not cheap when you do not have a great score. A significant down payment is necessary even for those who go with an FHA loan. Those with a credit score of around 500 to 580 should expect to have to put down a 10% down payment in order to get their house. Those with a 580 or higher credit score can settle in for just a 3.5% down payment and people with a credit score higher than 800 will settle for even less. It makes a big difference to have even a somewhat better credit score when you go to apply for a loan. Life with poor credit is certainly difficult, and it is often expensive. However, those who need something like a home can rest assured that there are options out there for them. Although they may have to use government programs or unconventional lenders, at least there is someone out there who can meet the market where it is. Check today to see if you qualify for some of the loans offered.
Be Aware When Applying For A Mortgage Loan
It cannot be stressed enough that the entire process of acquiring a mortgage loan is made much easier by having an understanding of all aspects involved in the process. Keep these points in mind:
- Your lender has an obligation to provide you with an estimate in good faith from your lender regarding our closing costs
- There are different types of loans available
- You have the option of obtaining mortgage insurance
One-time closing costs are a standard part of a mortgage loan. This is something that lenders charge and they are mandated to provide an estimate to borrowers that will demonstrate all closing costs in the form of writing. Borrowers also have the option of acquiring mortgage insurance that provides protection in the case of default on the mortgage loan. It should also be noted that if a borrower’s down payment is at less than twenty percent of the total price the most lending institutions will require mortgage insurance. Borrowers should also be aware of the various types of loans that are out there. There are loans through the VA for veterans of the services and also federal loans out there for first-time buyers.
Make Sure That You Educate Yourself On The Process Of Applying For A Mortgage Loan
Applying for a mortgage loan in order to buy a new home can be a stressful situation for many. A large part of this simply revolves around the feeling of being overwhelmed at where to begin. Many people find themselves saying what do I need to start the home loan process. The bottom line is that it is critical to understand what the steps are in terms of applying for a mortgage loan. You want to make sure that you also find out about any available programs to help with home loans. It is true that mortgage lending agencies of today are being more careful than ever in terms of who they lend money to so it is more critical than ever that you understand the process as well as understanding where you can go for help by making yourself aware of available programs to help with home loans.