Securing Home Loans With Bad Credit Is Not So Difficult

By June 17, 2013
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The effects of the recession has hit some harder than others, but for everyone the challenge of securing a simple loan from a traditional lending institution has become that bit harder. But, what about when seeking funds to buy a home? As large as the resulting debt might be, it is possible to get home loans with bad credit.

137741994The reality of the financial world means that few of us make as much money as we think we do. The economic crises that have hit the world in recent years means inflation is higher and the value of the dollar for the working man is lower. In this climate, getting mortgage approval despite poor credit scores seems unlikely.

But there are options available, and if the right mortgage provider is approached, an affordable deal can be secured. Remember, lenders need to lend if they are to turn a profit – so home loans can be found.

Understanding Bad Credit Scores

There is a lot of fuss made over credit scores, but it is important that everyone understands what exactly they mean and how significant they are in any loan application. When it comes to applying for a home loan with bad credit, the score is not ignored, but other factors are more important.

Still, the debt created by a mortgage is often $200,000 or more, so lenders usually have strict policies when it comes to bad credit borrowers. For example, while getting mortgage approval despite poor credit scores is generally possible, applicants with extremely low scores are unlikely to be approved.

A bad credit applicant has scores below 680. However, approval is possible between 550 and 680, while applicants with scores of less than 550 will find it very difficult to get home loan approval. This is where alternative sources, like the FHA, become worthwhile options.

The FHA Option

While mortgage lenders may be willing to take a leap of faith in approving a home loan with bad credit, there is usually a price to pay. The interest rates charged are higher and often there is a condition that a larger down payment is made.

But by going through the FHA, a more affordable solution can be found. The FHA does not issue loans, but they do guarantee a certain percentage of mortgages issued by commercial lenders. It is their backing that can make mortgage approval despite poor credit scores possible.

With the FHA, there is no requirement for a down payment – thus saving the borrower tens of thousands of dollars – and ensures a lower interest rate is charged. However, these home loans are restricted to applicants with scores no lower than 560.

Qualifying For an FHA Mortgage

If the FHA option does look like the best on offer, then it is important to know what is required to qualify for one. As has already been mentioned, only applicants seeking a home loan with bad credit scores of 560 or above can qualify, so it is not available to everyone.

Additional conditions are that applicants must have a property rental or mortgage history behind them, and have a credit history of at least 12 months. Applicants must also have at least 3 types of debt, to provide their credit history.

Getting mortgage approval despite poor credit scores comes down to proving affordability and trustworthiness, which is why applicants must be full-time employed and have no bankruptcy or county court judgments over their heads. When all of these conditions are satisfied, then a home loan comes within reach.