Bad Credit Mortgages

Attempting to obtain a mortgage if you have bad credit is not an easy task.  In recent years, it has become even more difficult.  Each potential borrower is scrutinized even more carefully with each loan application. 

The first quality that is considered when you are applying for a mortgage is your credit.  Usually banks are looking for credit scores that are above 620.  In some cases, exceptions can be made if there is an extenuating circumstance.  A life event that was not in your control is an example of an extenuating circumstance.  Job loss and medical bills are possible extenuating circumstances; however, getting a divorce is not an extenuating circumstance.  In addition to a credit score of at least 620, you need to have at least two years following a bankruptcy and three years following a foreclosure.  SInce the bankruptcy, your credit needs to be without blemish.  You also have to re-establish credit in order to show your creditors a clean pay history on new accounts.  If you are able to show that there were extenuating circumstances around the foreclosure or bankruptcy, you may be able to qualify for a home mortgage earlier than the two year mark, but it will be difficult to have an exception, and you must additionally have high marks in the other areas, such as assets, income, and job history.

The second quality to be considered for a home mortgage is income.  You need to have a two year history of employment in the same line of work and you must have documented income that is enough to support any debts you have as well as the amount of your potential new mortgage payment.  If you are self-employed, the lender will look at how much income you have after paying all your bills.

The third consideration is down payment and equity.  The majority of loan programs require you to have a down payment, but there are some exceptions to this rule, such as VA, USDA, and FHA loans.  FHA requires a down payment of 3.5%.  Yet these programs do allow a gift from a family member if that is an option. 

USDA Loans are loans that are for first time home buyers who are moving to a small town or rural area.  They are for modular and manufactured homes.  There is 100% financing available on this type of loan.  You can also finance your closing costs.  There are no loan amount limits.  The criteria for credit is flexible. 

VA loans are for veterans to be able to purchase a home that has low VA Mortgage rates.  This type of loan is designed for active and honorably discharged veterans.  The limit for a VA loan is $417,000.  VA loans may offer 100% financing.

FHA loans require a 3% down payment.  The seller can pay up to 6% of the closing costs.  The credit criteria for this type of loan is flexible.  Alternative credit lines, like car insurance, utility bill, or cell phone bill can be used if you have a lack of credit history.  Once you are two years out of bankruptcy, you can be approved for this type of loan.  You will be able to receive a gift from a blood relative in order to pay your down payment, closing cost, or both.  You can even have a co-signer assist you with buying a home.