Trying To Get A Home Loan With Bad Credit? No Problem!

The economy is recovering from the housing bubble crash. Lenders are lending again to people with bad credit, thanks in part to government-insured home loans and private mortgage insurance requirements. If you are trying to get a home loan with bad credit, there are a lot of good options for you.

FHA Home Loans

The most popular home loan choice for people with less-than-excellent credit is Federal Housing Administration (FHA) home loans. The government does not lend the money themselves, but they do promise lenders that if the borrower defaults on their mortgage that the FHA will repay the lender. Because of this, lenders are more willing to lend money to people with bad credit.

Those who apply for an FHA mortgage can have a FICO score of 580 to qualify for the loan, and instead of the usual 10% down payment amount they currently only need to have 3.5% down payment. Lessened down payment requirements are an attractive offer for borrower's who want a home now versus waiting to save up for a more significant down payment.

If a borrower has a lower credit score than 580, however, hope isn't lost for them to receive an FHA loan. A borrower can have as little as a 500 credit score if they can make up the difference with a more considerable down payment amount. Instead of a 3.5% down payment, they need to have a 10% or more down payment ready.

Unlike conventional loans, however, FHA loans do require mortgage insurance on the mortgage loans. The mortgage insurance is in place to protect the lender in case a borrower defaults. If a borrower defaults on a loan, the lender files a claim against FHA's insurance fund, and the FHA reimburse the lender for any losses.

Other Government-Insured Home Loans

While FHA home loans extend to people with lower credit scores, there are still other government-insured home loans that may be an option for people with poor credit scores. Veteran Affairs (VA) home loans are loans that require no down payment and only require a 620 credit score to qualify. VA home loans are only extended to qualified veterans, however. USDA rural home loans are also available for borrower's in rural areas in the United States, have specific salary cap requirements but are also offered to people with a credit score of as low as 640.

Rebuild Your Credit

Sometimes the best option is to wait and take out a mortgage when you have rebuilt your credit a little more. Get a free copy of your annual credit report and see if any items are incorrect that are hurting your credit score. Look at your payment history, debt-to-income ratio, the types of debt you have and see what is causing your lowered credit score. Work on repairing that credit by paying down high debt-to-income amounts, take out a reasonable loan to diversify your credit and make payments on time. Making plans and changes now, even for those who qualify for mortgage loans, is a great way to look appealing to lenders when you are applying for loans.