Bad Credit Mortgages Are Becoming Mainstream
There are more home buyers today with bad credit than ever before. We see more requests for bad credit mortgages today and those trends are likely to continue. From a mortgage perspective, bad credit can mean poor credit scores or a recent credit event such as a bankruptcy or foreclosure.
When a borrower has bad credit, traditional lenders who offer conventional loans cannot help. They are tied to Fannie Mae guidelines which limit their ability to lend to individuals with poor credit. However, there are bad credit mortgage lenders who offer niche programs that can help the millions of home buyers who are having difficulty qualifying for a mortgage.
How to Qualify for a Bad Credit Home Loan
Lenders will often require some of the following compensating factors when approving a mortgage to someone with poor credit:
- A larger down payment
- High income levels
- Substantial liquid assets
- No prior late mortgage payments
If you do not meet all of these compensating factors above, it does not mean you cannot qualify. Simply having steady income and the right down payment amount could be enough for you to purchase your dream home.
Bad Credit Mortgage Programs
Bad Credit FHA Mortgages
One of the best programs with bad credit is an FHA loan. The FHA credit requirements will allow for credit scores as low as 500. Not all lenders will offer FHA loans to individuals with credit scores that low. Some lenders will overlay their own restrictions over and above what is outlined in the FHA Guidelines.
Non-QM Mortgages
There are also non-QM mortgages offered by subprime lenders which work well for anyone who has had a recent bankruptcy or foreclosure. If you are even one day out of bankruptcy, these lenders can help. However, you can expect the down payment to be in the neighborhood of 20%.
Non-QM mortgages are also popular for self-employed borrowers who cannot document their income using their tax returns. In this situation, the lender will offer what is called a bank statement loan. With this mortgage program, the lender will use an average of your last 12-24 months bank statement deposits as income on your loan application.
Summary
If you have bad credit, there is still hope for you to find a mortgage. It is obviously best to do whatever you can to improve your credit situation. In the end, that will also give you a better chance of having a lower rate.
Other Helpful Articles
Bank Statement Loans for Self Employed
Documents Needed to get Approved for a Mortgage
