Finance

What’s the Best Home Loan if You Have Bad Credit?

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If you have bad credit, you may already have given up on the dream of owning a home. But, before you give up and resign yourself to renting for the rest of your life, take a minute to learn more about FHA loans.

Loans backed by the Federal Housing Administration (FHA) are also ideal for first-time home buyers and anyone who has not yet established their credit. You may also have other options that will help you qualify for a mortgage. Talking to an experienced mortgage broker can help put you on the right track.

Buying a Home with Poor Credit

To determine your qualifications, mortgage lenders order a credit report, which will note your current score and list your credit history for the past seven years. As credit ratings go, the general guidelines are as follows:

  • 720+               Excellent
  • 680-720         Good
  • 640-680         Fair
  • Below 640     Poor

Although mortgage qualification guidelines vary based between different types of loan programs, some lenders will discourage you from trying to buy a house if your credit score falls into the poor or even the fair category.

Fortunately, many mortgage companies are willing to work with you to find a program that works for you and helps you achieve your goals.

FHA Loans for Buyers with Low Credit Scores

The FHA modifies its qualification guidelines from time to time but, currently, these loan programs do not impose a minimum credit score. In other words, your actual credit score is only one of the criteria used for home loan qualification.

If your score falls into the fair category, you may be able to qualify for a mortgage with a minimal down payment. If it falls into the poor category, you can still get a home loan, but you may need a slightly larger down payment.

Loans backed by the FHA also offer affordable interest rates and several options for loan structure and term. Your mortgage company can help you select the one that suits your needs and your budget.

Home Mortgage Alternatives for Buyers with Bad Credit

In addition to FHA loans, your mortgage lender can help you explore other options that may work better for you. With a variety of low- and zero-down mortgage programs available today, most would-be home buyers can find a loan that works for them.

To pre-qualify you for a mortgage, your lender will look at your income and job history, your current debt load and any assets you may have (retirement accounts, savings, investments, etc.), as well as your credit score.

Although you might be tempted to try one of the online mortgage qualification websites, the best way to determine exactly what type of home loan you may qualify for is to talk to a local mortgage company. This is especially important for buyers with poor or no credit. An experienced loan officer can take the time to learn more about your circumstances and your objectives. Using this information, a good mortgage broker can shop the available loan programs to find the best home loan for you.

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