Lets discuss how we can get a home loan with bad credit. Home loan is a type of mortgage loan borrowers access for the purchase of a house. Thus, this form of loan goes for people who wants to become homeowners. It is also regarded as a secured loan with security (collateral). As such, your house or home becomes the collateral till repayment of loan is complete.
Sticking to our main topic, we will be look at how home loans work and how one can gain them with bad credit. Most often, many people with bad credit feel devastated for the fact that they loose hope thinking they will never qualify for any form of loan.
What is bad credit score?
According to Wikipedia, “A credit score is a numerical expression based on a level analysis of a person’s credit files, to represent the creditworthiness of an individual”. This is to say that, most lenders or financial institutions use credit score as one of the factors in checking the credibility of a borrower.
It is however important to note that not every lender count credit score as an important factor in determining whether you qualify for a loan or not. Others prefer to consider other factors which means people with bad credit can also get loans if they meet those requirements.
According to FICO scores, a credit score below 580 is determined as poor or bad. Some lenders find it difficult to grant people with such credit loans because they see it as a risk.
Also, it is important to note that bad credit attracts high interest rate but if you are able to go according to the terms and pay-off successful, it will help build your credit score little by little.
Factors bad credit lenders consider
Since these financial institutions do not place priority on credit score, they surely have other factors they rate borrowers with. They take into consideration some of these factors;
- Employment history
- Payment history on other loans
- Income or salary of borrowers
- Downpayment availability
- Taxation history
How to get a home loan with bad credit
Let’s take a look at a few things you can do as a borrower to get a home loan with bad credit;
Interest rate of lenders varies therefore review different companies and choose the best rate.
- Select the type home loan you want and get more information on them in terms of credit score and other requirements.
- Find a co-signer with a good credit score.
- Make available downpayment amount.
Home loans with bad credit
Below are some forms of home loans provider by lenders and how they work;
This form of loan are offered or secured by government with a minimum credit score of 620 and above. But borrowers below such credit score can qualify for conventional loans if meet other requirements such as having a good income.
Federal Housing Administration loans are offered by lenders issued by FHA. With a credit score of 580 and below, you can get FHA loans with a 3% downpayment.
A USDA loan is another form of loan issued by the U.S. Department of Agriculture. Purchase a home with USDA loan allows in a rural area with a $0 down payment.
VA loans are available to veterans , service members and qualified military spouses who wants to own a home at a $0 downpayment. Also, VA loans are offered by the department of Veteran Affairs program.