Home Loan Programs for People with Poor Credit

Credit is one of the main factors in qualifying for a mortgage loan when buying a house. Let’s face it, purchasing a home is something that is a dream for millions, and for most of us it will require that we take out a home loan. Recently, the mortgage market has made serious recoveries and its’ more possible than ever before to secure a good home loan. But if you have poor credit, it’s easy to assume that you have little chance in securing a home loan.

In reality, it is more difficult to get a home loan if you have poor credit – but it isn’t impossible. In fact, there are actually several government backed home loans out there designed specifically to help those with poor credit secure a loan. Taking a look at these government home loans for poor credit applicants is well worth doing, so here’s a look at the most commonly used ones.

government-loans

Comparing Government Home Loans for People with Poor Credit

FHA: Mortgages insured by the Federal Housing Administration are one of the most popular options when it comes to government home loans for those with poor credit. The loans are set up to help those with credit problems in the past get themselves on the road to recovery. Their requirements include:

  • 3 years of stable income
  • Bankruptcies must be at least 2 years old
  • Any foreclosures must be at least 3 years old
  • You must have 3 years of good credit history following foreclosures – your credit scores may still be low, but for that period of time you can’t default or have bad credit occurrences
  • You must show good debt to income ratio

If you meet those basic requirements, a loan expert could help you get the kind of loan that you are looking for and get yourself back on the path towards home ownership.

VA: VA loans are just what they sound like – loans set up for and only available to those who are veterans or qualified military personnel. These loans will allow soldiers and vets with bad credit to secure a home loan provided their bankruptcies are at least 2 years old, and as long as they have one year’s worth of good credit history. They’re backed by the government and as such they offer some excellent rates – but it’s a must that you be a veteran, which holds some people back from these loans.

USDA Loans: If you’re in a rural area, the USDA could offer you a loan as well. This doesn’t mean that you have to buy a huge farm in the middle of nowhere, and in many cases people are surprised to find certain homes that are available through these loans. They’re also available for those with less than perfect credit provided you can show that you have adequate employment.

These are just three of the most commonly used loans that are backed by the government and designed to help those with little to no credit start to get back on their feet. Your state may also have additional loan options available that are worth looking into, so it’s always a good idea to talk to someone in the know about the different types of government backed loans you might qualify for.

New Rules to Qualify for a Home Loan with Poor Credit Scores

For years, there has been one standard by which most people and lenders determined whether or not a home buyer could secure a mortgage loan – their credit score. While things like income to debt ratio, employment history, and down payment all matter as well, the credit score is a very large determining factor in purchasing a home. As such, for many people a home loan always seemed out of reach.
However, major lenders have recently adopted new rules that will make it easier to qualify for a home loan. Existing paths to these loans still exist as well, and thanks to these new rules it will likely be much easier for those looking for a home to secure the mortgage they need.

The new rules are very similar to the guidelines set forth with FHA backed loans, and are now being utilized by major lenders like Fannie Mae and Freddie Mac even when a loan doesn’t have FHA backing. Among the big changes are the following two points.

  • Lower Credit Score Requirements – In the past, credit scores of around 745 were the minimum for those looking for a home loan. Thanks to the new rules, score requirements will be much lower – around 620 at a bare minimum. Other factors will go into determining eligibility for a loan, but this lower credit score requirement means that it will be simpler for many who have struggled in the weaker economy to find a loan that will help them buy their house.
  • Lower Down Payments – Along with lower credit scores, it will also be easier to come up with down payments. In the past, down payments of as much as 20% of the total home price have been required. Now, down payments of around 3% are all that it will take.

It’s true that some other programs from major lenders and many government backed loans already use the requirements above, but the fact that lenders are dropping their requirements significantly means great things for everyone involved. Borrowers are now able to access a wider selection of loans, and lenders are able to help improve the housing market and start moving the economy forwards in the right direction.
If you’ve been trying to figure out how to qualify for a home loan with poor credit, you’ll be happy to see that thanks to these new rules it’s now easier to do than ever before.

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