The Federal Housing Administration (FHA) offers a variety of loans for borrowers with low credit scores, including home mortgage and home improvement options. Check out opportunities to get home loans for bad credit without draining your bank account.
Home Loans for First-Time Buyers
FHA-insured loans are less risky for lenders, so they can offer low rates on mortgages. It’s no longer necessary to have a 620-credit score, and those with bad credit can be approved. Bad credit, or sub-prime mortgages, make it possible for buyers with credit scores as low as 500 to get a mortgage with a 10 percent down payment; those with a 580 score can qualify with 3.5 percent down.
USDA and VA loans also work with borrowers so that they can get affordable home loans, even without great credit. Each of these have different requirements that you should discuss with your lender.
Compensating Factors for Home Loans for Bad Credit
Usually, poor credit loans require a manual underwriting process, which can take longer to approve. The following factors lower lender’s risk and make it easier to get approved, even with bad credit:
- Down payment of 10 percent or more
- Small debt-to-income ratio
- Long-time tenure with current employer
- No outstanding debt
- Large cash reserves
- High income
- A comparable rent payment
FHA Home Improvement Loans
An FHA 203(k) Rehab Loan is designed for buyers who want to repair their existing home. This includes homebuyers interested in rehabilitating a property that needs a lot of repairs. A streamline 203k loan is a fast, easy process to let you make cosmetic repairs. For major repairs, like foundation or plumbing work, you must apply for a standard 203k loan. Typically, you need a FICO score of 640 to qualify.
