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