Poor Credit Home Loans
So You Want a Poor Credit Home Loan? No problem
You can purchase a home if you have a low credit score.
There are many different options available for people that have low credit scores. In general, home loan rates for poor credit home loans won’t be as good as home loan rates for those with good credit.
No matter why you have poor credit, there are many solutions to help potential borrowers with a home loan.
Do you need to buy a home right now? Or can you improve your credit score before applying for a poor credit loan?
Want to check your credit? Get a free credit report once a year at www.annualcreditreport.com
If you need a poor credit home loan right away...
Having a low credit score will not keep you from obtaining a home loan; it will just make it more expensive.
Individuals with good credit can obtain lower interest rates and better terms (because their credit history shows they have repaid debt), which usually means a lower monthly mortgage payment and less money paid in interest and fees in the long run.
Let’s consider the possible home loans if you have poor credit, from higher interest rates to adjustable rates.
- Fixed Rate Home Loans
- Adjustable Rate Home Loans
- Interest-Only Home Loans
- Negative Amortization Home Loans
- FHA Home Loans
- Jumbo Mortgage Loan
- Balloon Mortgage Loan
- RHS Mortgage Loan
Fixed Rate Home Loans
A fixed-rate home loan is the standard home loan. Poor credit home loans with fixed rates will have a higher interest rate and higher payment than a fixed-rate home loan for a buyer with bad credit.
Adjustable Rate Mortgage Home Loans
Adjustable rate home loans may begin with lower interest rates, but after one to five years, the interest rate can adjust 2% each year. If borrowing rates jump unexpectedly, mortgage payments will also increase a large amount.
Interest-Only Home Loans
Interest-only home loans have lower monthly mortgage payments for a fixed term. However, you do not pay off the balance of the loan - not the principle.
Negative Amortization Home Loans
Negative amortization home loans have lower monthly payments for up to five years, but interest that is not paid down is added to the principal, increasing your mortgage balance - and what you owe.
FHA Home Loans
Federal Housing Administration loans are easier to obtain if you do not have good credit. FHA loans allow smaller down payments, but require steady employment, a year of good payment history and possibly credit counseling.
Jumbo Mortgage Loans
A jumbo mortgage loan is a non-conforming loan that goes over the limits, as set by Freddie and Fannie Mae, and changes yearly.
Balloon Mortgage Loan
A balloon mortgage rate offers a lower rate for a specific period of time, then you have to pay off the principal in a lump sum. Typically this rate will be designed for 3 to 10 years and are designed for borrowers that intend to refinance before the lump sum payment is due.
RHS Mortgage Loan
Rural Housing Service Mortgages are provided by the Department of Agriculture. They can offer low interest, no-down payment loans to farmers and other qualified borrowers. These types of mortgages are specifically aimed at low to moderate income earners who are looking to buy property in small towns or rural areas and are unable to obtain loans elsewhere.
For information from the Federal Government on home loans you can go to https://www.usa.gov/shopping/
If you can wait on your home loan, you should improve your credit score first.
Improving your credit score will make your home loan much less expensive.
Improving your bad credit to get a better home loan: Give Your Credit Time
A bankruptcy clears from your credit history in 10 years. If you can’t wait 10 years, you can get better home loan rates 4 years after filing for bankruptcy.
Foreclosures stay on your credit report for up to 7 years from the date of sale. Waiting 2 years after a foreclosure will improve the terms and rates offered by mortgage lenders.
Improving your bad credit to get a better home loan: Build Up Credit
Sometimes you can’t get a loan if you have no credit history. If you have no credit history, there’s no evidence that you can pay back debt.
Use a credit card responsibly to demonstrate your ability to borrow money and repay it in a timely and responsible manner.
Improving your bad credit to get a better home loan: Pay Your Debt Down
Increase your credit rating by paying off your debt.
Potential mortgage lenders want to make sure that borrowers are not over-extended (have too much debt).
If you have taken on more than you can handle or if credit cards are maxed out, it makes lenders think you cannot manage your finances. And it makes lenders think you are not a good candidate for a home loan.
Your indebtedness is reported to the credit bureau and affects your credit score. The less the credit limit is used, the better. Try to get balances down to 50% of the credit limit to start.
Improve your chances of qualifying for home loans: Start Saving.
Save up for a down payment.
Mortgage lenders usually expect a 10% down payment, and the expected down payment can increase to 20% if you have a low credit score.
Save for other expenses as well. Homeowners incur more expenses than renters, so start saving up for regular maintenance and emergencies.
Bad credit does not deter lenders from providing home loans if you are are prepared for one. Being well-informed is the first step to choosing poor credit home loans and making sound financial decisions.