3 Breakthrough Home Loan Programs for People with Poor Credit

After the mortgage crash at the end of the Bush-era, many people had their credit scores damaged due to late payments, foreclosures and even bankruptcy. Millions of Americans were affected, and many still believe that they cannot qualify for a home loan even many years later. This is generally not true!

In reality, there are breakthrough home loan programs available for many people with low credit scores, and not all of them have high interest rates. Below are some of your best options in 2018:

FHA Home Loans

An FHA home loan is not actually made by the Federal Housing Administration. It is backed by FHA and is underwritten by a mortgage lender that has been approved by FHA. The insurance of the loan by FHA greatly reduces the financial risk to the lender when making a loan to someone with an average or poor credit score.

FHA loans are the most popular option for those with poor credit. FHA will allow buyers with 580 credit scores to make a 3.5% down payment in some cases. Some lenders may have higher requirements, so if you have a FICO score under 600, you might have to check with several FHA-approved lenders.

The FHA program also has very low interest rates even if you have a low credit score. Much of the risk of making the loan is removed because FHA backs the program, so you might even be able to get an interest rate below market rates.

Having access to a low interest rate with a low credit score does have some downsides. You will need to pay for mortgage insurance each month, but this is considered by many experts to be a reasonable price to pay. At least you get a low rate and do not have to keep paying rent.

To qualify for an FHA loan with a low rate, you will still need to prove that you are stable financially and are not making late payments on any of your current credit and debt obligations. A low credit score will not prevent you from credit approval through an FHA backed lender, but several black marks on your credit report in the past 12 months probably will. Also, you will need to show with documentation that you have the income to support the mortgage payment and your other bills.

The FHA program does not have any maximum income limit, so this program is often the choice for many middle and upper middle-class borrowers who have low credit scores.

USDA Home Loans

The USDA home loan program is similar to FHA: Both are designed for the lower credit and lower income borrower. The USDA program is quite easy to qualify for. You only need a 620 to 640 credit score and the program is backed by USDA, so lenders can afford to offer you a low interest rate. 100% financing is available for some borrowers.

On the downside, you can only have an income that is 115% of the median income for the area in which you want to buy. Also, you need to buy a home that USDA considers rural and is outside many major metropolitan areas. You should check with the USDA website to determine if your property qualifies, or you can ask your USDA approved lender.

VA Home Loans

The VA program is backed by the Department of Veterans Affairs. It is similar to an FHA loan but is only for people who are active or retired military. Like the FHA program, it is guaranteed by the US government and it is possible to get a very low interest rate that is even lower than FHA offerings.

You can get 100% financing, there is no minimum credit score requirement, and mortgage insurance is not necessary. There is an upfront funding fee that must be paid but you can wrap it into your mortgage. As with FHA, you will need to show that you have the income to pay the mortgage, but most who apply for a VA loan can be accepted if their income and finances are stable.

Now that you know the best home loan programs for people with poor credit, these are some of the best mortgage lenders to consider:

• Rocket Mortgage: Good for borrowers with low credit scores who want flexibility on income and credit. FHA, VA and USDA loans offered.
• New American Funding: Uses manual underwriting in many cases to approve mortgages for those with lower income and credit.
• JFQ Lending: A good lender for those who want a fast and automated approval process. Offers FHA, VA and USDA loans, and also Fannie Mae HomePath mortgages.
• Carrington Mortgage: Another great choice for the low credit score borrower. Almost 95% of its loans are FHA, VA or USDA. Almost 50% of Carrington borrowers have FICO scores under 650.