If you have less than perfect credit, it doesn’t mean you can’t get a home loan.
When deciding on whether or not to lend to someone, lenders try to assess your ability to repay. A credit score is just one input they consider. They also look at the reason for less than perfect credit score, job history, income stability, and your overall debt-to-income level.
3 Steps To Getting The Home Loan
You can take steps to increase your chances of getting a mortgage with a less than perfect credit score by:
- Placing A Larger Down Payment – Don’t wait for a lender to ask for a larger down payment. Be prepared to offer one. This will give the lender confidence in you as a borrower and reduce their risk level.
- Lower Your Debt-To-Income Levels – Even though your credit isn’t at its best, that doesn’t mean you have a lot of debt. Try to reduce overall debt-to-income levels like car payments, student loans, credit cards, and other recurring debt.
- Use A Co-Signer – You can get someone to co-sign a mortgage for you. Realize that you will be asking a lot of this person. If you don’t pay the mortgage, they will be responsible, and their credit will be impacted.
Home Loans You Can Get With Less Than Perfect Credit
Some mortgages are specifically designed to help less than perfect credit borrowers get into homes. Most are backed by government institutions that insure the mortgages.
FHA – stands for the Federal Housing Administration. These loans are popular for a few reasons. For one, they contain the lowest credit score requirements of any major home loan program.
VA – stands for “Veterans Affairs,” which is the department that backs these loans. They are offered to service members, veterans, some eligible spouses, and other military-affiliated borrowers.
USDA – stands for United States Department of Agriculture. This loan was designed to increase homeownership in rural areas. To qualify, you must buy a home in a “qualified” rural area.
Freddie Mac Home Possible® Program – The program was designed for low to moderate-income borrowers looking to buy a first home.
Fannie Mae HomeReady® Program – like Home Possible®, this program is designed to help low to moderate-income borrowers. HomeReady®, though, isn’t just for first-time buyers. It also has a unique feature in that it lets you include income from other members of the household other than just the borrower. You can include the income of roommates, adult children, and parents in your debt-to-income ratio.
Non-Qualified Mortgages – In 2014, the federal government created a category of loans designated as “qualified mortgages.” To be a qualified mortgage, a loan couldn’t have criteria designed as high risk – things like balloon payments, negative amortization, or interest-only payment periods. A lender offering a “qualified mortgage” also has to go through a good faith effort to determine if you can repay. Qualified loans offer the legal lender protection against investor buy-back demands.
You Have The Power To Be Awesome!
There are mortgages available if you have a low credit score. You just might have to work a little harder trying to find the one that fits your situation. While you can find a loan with a less than perfect credit score, if you can get your score up, you start opening up more options.
The best way to find the right loan is to work with a loan advisor that can work you through the best options and information needed to qualify. At EMM Loans, we are experts in FHA, VA, USDA, Conventional, Fannie Mae, Freddie Mac, and Non-Conventional loans. We work with a broad range of loans to help people find the best option.
Want more information about applying for a home loan? Call us at 800-793-9633 or complete the brief form below!