Even before the emergence of the financial crisis, having a bad credit wasn’t really a hindrance in getting available home loans. Many lenders were willing to provide people with zero down mortgages, piggyback loans and nonconforming loans to subprime borrowers. A lot of mortgage lenders believe that since house pricing followed an increasing trend, subprime borrowers always have the option of either refinancing their mortgage or selling off their home and repay the borrowed money. Hence, ‘seller refinancing’ was also a popular trend. During the early 2000 to mid 2006, there was an estimated 90% increase in home prices which helped maintain status quo. As the years passed, it was found out the increases in home prices couldn’t be sustained definitely. Home prices started to decline while interest rates were shooting up. This phenomenon led to a number of individuals defaulting on their mortgages. There were increasing short sales and foreclosures because of the default. These days, home prices have settled down to the 2003 price levels.
Home Financing Options for People with Bad Credit
Nowadays, people with not so good credit ratings can not avail conforming mortgages since most of them tend to have stringent and high credit requirements. Aside from that, a 25% down payment of the entire loan is already mandatory. Thankfully, the federal government has more affordable options these days- the Federal Housing Administration’s insured loans and the Department of Veteran Affair’s insured loans.
FHA Insured Loans: Know your Options
FHA insured loans are best for individuals who cannot qualify for private mortgage insurance and for those who are not able to make requisite down payments when availing a mortgage. Loan applicants who have credit scores ranging from 580 to 620 are more likely to get approved for such loan. Individuals with foreclosure properties and bankruptcies may also qualify for FHA insured loans provided:
· The borrower has the capacity to put down 3.5% of the home’s worth as down payment
· Three years has elapsed since an individual’s house was foreclosed
· The aspiring home buyer made timely payments on accounts for a period of 12 & 24 consecutive months starting from the date when Chapter 7 or Chapter 13 bankruptcy was filed respectively.
· The borrower has a good debt income ration and credit scores within the mentioned range
The Federal Housing Administration also provides mortgage loans for public school teachers and also gives them the opportunity of purchasing HUD acquired properties at a 50% appraised value. Housing loans for university/college students are also available. A college student can apply for a housing loan regardless of his or her credit history, job history or statement of assets provided that the loan is co-signed by a blood relative.
The Homeownership Voucher Program
Public housing agencies get federal aid from HUD and provide ‘homeownership vouchers’ to less privilege families interested in purchasing a home. This is particularly popular among single moms who want to buy a house. Look for participating lenders for more details regarding this loan.
VA Insured Loans: Things you have to Know
These loans are made for eligible veterans and are usually based on the years of active duty and a number of service requirements. VA insured loans won’t need down payments which makes it a great option for many qualified veterans. These loans don’t have premiums for mortgage insurance and only requires a total of 2% funding fee.
Tips Before Getting a Mortgage
- Know and examine your credit score. Your credit score affects your ability to get a mortgage with good deals and low interest rates.
- Look for ways on how you can improve your credit. Lending companies will be much more receptive and rates tend to get cheaper if you are clearing up credit problems before shopping for mortgage.
- Try to test your budget. Interest rates tend to climb up for those who have bad credit. Come up with a budget that tells you how much can you comfortably pay for mortgage every month. Set aside a certain sum of money for down payment each month.
- Check your eligibility for FHA and VA mortgages. These organizations would be more than willing to help qualified applicants get home loans.
- Review the present market’s interest rates. Do not just look over average market trends.
- Consider relevant factors such as credit scores, fixed/ adjustable rates, original purchase loans, refinancing and etc.
- Shop around for lenders. Use the internet when looking for affordable interest rates. Compare rates and make sure to grab the best deal there is.