Getting A Home Loan If You Don’t Have Good Credit
It is possible to get home loans without a good credit score. However, there are some steps that you must take to make sure you can get a loan. Most banks are hesitant to lend to someone who has a bad credit score. In some cases, you could pay a higher interest rate than clients with a better credit score. One option if you have a bad credit score is to go through the FHA. The FHA (federal housing administration) doesn’t charge excessive interest rates to people with low credit scores.
The Federal Housing Administration:
The Federal Housing Administration offers loans through two organizations. These two organizations are Fannie Mae and Freddie Mac. They both offer conventional mortgages, and it’s possible to get them with a credit score that is below 620. There still are some requirements that you’ll need to meet to get a loan from them if you have bad credit.
The down payment required for federal housing administration loans is relatively low. In fact, it’s possible to pay a down payment as low as 3.5% of the cost of the home. If it’s possible, it is better to pay a larger down payment though. With a larger down payment, you’ll be able to pay off the mortgage more quickly.
Furthermore, the federal housing administration makes it easy to apply for loans. There isn’t much paperwork involved and an approval can be given within 24 hours.
If You Are A Veteran, There Could Be Additional Options:
You may be able to get a VA loan if you have been in the military. In order to get a loan from the VA, it’s typically required to have a credit score of 620. If your “bad credit” is caused by simply lacking a credit history, you can still get a VA loan. The interest rates on VA loans also tend to be low. Furthermore, VA loans make it possible for many people to borrow more money than they would be able to otherwise.
What Types Of Loans Should You Avoid?
Some loans that are offered to people with bad credit have an adjustable rate. This means that a low interest rate is offered at first. However, the interest rate doesn’t remain low. Instead, the interest rate begins to rise during the time that you have the loan. This means that the monthly payments continue to go up. In some cases, the monthly payments can rise to the point that the payments become unaffordable. This can result in foreclosure. Therefore, it is essential to read the fine print of any loan that you apply for.
Tips That Can Increase Your Chances Of Getting A Loan If You Have Bad Credit:
- Always Pay Your Rent On Time:
If all of your rent payments were on time during the past year, your chances of getting a mortgage will be higher. It’s also quite easy to show lenders that this was the case. - Some Factors Can Help To Mitigate The Effects Of A Bad Credit Score:
If you lost a job in the past and ended up in debt, this scenario is often looked upon differently than the mismanagement of your money. If your financial problems are caused by past job loss, show proof of this to potential lenders. This may make them more likely to consider you. - Online Research Can Be Effective But Be Cautious:
There are plenty of places where you can search for lenders online. This can help you to find a loan that offers low interest rate and is available to people with bad credit. However, it’s always important to read reviews when doing online research. This can ensure that the lender you choose is legitimate.