FHA Mortgage Loan With Bad Credit

FHA Mortgage Loan With Bad Credit

The United States Federal Housing Administration (FHA) insures mortgages. The FHA guarantees FHA loan products offered by FHA-approved lenders. If the loan goes into default, the FHA will pay the remaining amount left on the loan after it has been foreclosed. Since there is such a high risk posed for lenders, the FHA has tightened its credit requirements for the popular 3.5% down payment program. Lenders also created stricter qualifying guidelines, making it harder for home buyers to obtain FHA guaranteed loans, than before the housing market crashed. Bad Credit Mortgage Lenders specialize in helping home buyers receive FHA loans with bad credit.

FHA Mortgage Loan With Bad Credit

How to Qualify for an FHA Mortgage with Bad Credit

The following includes things you can do to qualify for an FHA loan with bad credit:

  • Save money for a large down payment. According to HUD, lenders can only approve 3.5% down payment loans for borrowers with a minimum credit score of 580. Applicants with scores lower than this benchmark can offset this by coming up with a larger down payment. The FHA requires that borrowers with a credit score under 580 must pay at least 10% down on a home to receive a loan. Lenders may even require more than just 10% down, so the more money you have for a down payment, the better your chances.
  • Improve your credit score. Stay current on all your monthly payments and pay off outstanding debt to improve your credit rating. The average credit score for FHA loan borrowers hovers around 700, according to HUD. To qualify for a mortgage with 10%, your credit score should be between 660 and 720.
FHA No Credit Loan
  • Have good credit for the past two years. Having good credit history for two years before you apply for a loan doesn’t mean you will get approved, but it can only help your case. HUD requires underwriters to explain any negative credit information two years prior to the loan application. Although most of the time, lenders will need to document negative information that is older than two years.
  • Show other factors that give you buying power. According to HUD, a “compensating factor,” is something that can show reason for approval when an applicant has higher than normal debt. If your debt-to-income ratio is too high, then you may not qualify for a loan. If you can show that you have substantial savings, high earning potential, or the ability to make housing payments over the past two years, your lender may consider those factors.
  • Find a co-signer. If you can get a co-signer that has good credit and/or qualifying criteria, this can help you get approved for a mortgage. Remember though, if you do not honor the loan, your co-signer will be responsible to pay back the remaining balance. If the co-signer does not repay the debt, they may face serious damage to their credit.
FHA Loan With Alternative Credit

FHA No Credit Loan

When it comes to FHA loans, having little or no credit can be better than having bad credit. HUD prohibits FHA lenders from rejecting a borrower’s application because they have no credit history. This is because lack of credit history may be a conscious choice. If the lender cannot verify the applicant through means of traditional credit, then alternative lines of credit may be considered.

FHA Loan With Alternative Credit

There are guidelines created by HUD (United States Department of Housing and Urban Development) that help lenders to assess credit alternatives to determine a borrower’s credit worthiness. FHA underwriters must gather payment information from things that do not show up on credit reports such as the applicant’s phone bills, car payments, rent, or any other documents showing the borrower’s ability to pay debts.

How to Qualify for an FHA Mortgage with Bad Credit

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