New Standards on Home Mortgages for People with a Bad Credit History

Poor Credit Scores

Buying a home takes a big commitment, and it also means that you have to meet several key requirements in order to actually qualify for the loan you need. Very few people are lucky enough to have the money to buy a home outright, and the sad fact is that plenty more don't' have the kind of credit score needed to secure a good home loan.

In most cases, experts will tell you that in order to secure a home loan you need to have a credit score of around 650 in order to secure a mortgage. But while that's the traditional way of thinking, it's not entirely accurate anymore. In fact, there are numerous programs and loan options out there that have much lower credit score requirements. Even if you don't' have perfect credit, you'll find that you do have some options available to you.

With that in mind, here are a few things to understand when you have damaged credit and are looking for a home mortgage for a poor credit history.

  • The government can help tremendously. FHA financing has become one of the most popular options for first time home buyers as well as for home buyers who have less than perfect credit. You might be able to find a loan and get approved for it with a credit score of as low as 580. This will require that you come up with a 3.5% down payment, but it is a viable option. In fact, if you can come up with a 10% down payment you can even land a home loan through HUD and the FHA with a credit score of as low as 500.
  • If you can build up other positive areas within your financial situation, it can help lenders overlook bad credit. Yes, your credit score is important. But if you have very low debt to income ratio, a decent down payment, and solid employment history it can help you tremendously.
  • Don't automatically assume that a subprime loan is a deal with the devil. They got a bad rap during the economic downturn, but today subprime loans do offer a path to home ownership to those who have low FICO scores. You just need to be sure that you can meet the monthly payments and that you're willing to pay higher interest rates.
  • Even if you have past bankruptcies or foreclosures, you still have options. New standards mean that the waiting period to apply for a loan after a negative occurrence like this has been greatly reduced, and you should be able to start rebuilding your credit and call yourself a home owner.

Simply put, you shouldn't feel like you have no options for securing a mortgage just because you have bad credit. The reality is that new programs are making mortgage loans far more accessible than many think. If you have a good job and a decent down payment, there's a very good chance that you will be able to secure the loan you need and get into the home of your dreams.