If you’ve had challenges with your credit, you may think that the dream of being a homeowner is out of reach. But here’s some good news—it’s still possible to qualify for a mortgage if your credit is imperfect. FHA home loans are mortgage loans backed by the Federal Housing Administration, which means that customers with lower credit scores are also able to qualify. For conventional loans, most lenders require a credit score of at least 640 and a down payment of 5% of the price of the home. But for FHA loans, the minimum credit score is 540 and you can make a down payment as low as 3.5%.
Don’t forget—your credit score isn’t the only requirement. You will still need to meet income and financial requirements to qualify. But it’s absolutely possible to buy your dream home when your credit score isn’t as high as you’d like.
Applying for an FHA Loan with Bad Credit
If you’re ready to apply for an FHA loan bad credit, but you’re concerned about your credit score, there are a few things you should do before you start the loan process. Making sure you’ve taken these steps will help you put your best foot forward when you apply for your FHA mortgage loan.
Applying for an FHA Loan with Bad Credit
A credit score is a number between 300-850 that represents a person’s creditworthiness. Your score is based on a number of factors including credit history, number of open accounts, payment history, total debt, etc. Lenders use credit scores as a way to help them anticipate the likelihood that you will repay your loan on time.
There are three national credit reporting agencies—Experian, Equifax, and TransUnion. By law, you are entitled to one free copy of your credit report every 12 months from each of these agencies. There are also several companies who will provide you with information from all three agencies in one report. The option authorized by the Federal Trade Commission (FTC) is
www.annualcreditreport.com. Just be sure you’re using a reputable company, since you’ll need to provide your personal information to obtain your report.
Knowing your credit score is the first step in understanding whether you may be able to qualify for an FHA mortgage loan.
Research What Type of FHA Mortgage Loan You Can Afford
Many mortgage lenders, even FHA lenders for bad credit, will offer a higher mortgage loan amount that you can afford. People are sometimes surprised by the amount the lender offers! But just because you’re offered that amount doesn’t mean you can actually afford it.
Before you enter a FHA Mortgage Loan agreement, it’s important to look at your finances to see how much housing expense your budget can accommodate. You’ll want to be sure you can comfortably afford your mortgage payments, along with paying all your other bills. Keep in mind that your monthly mortgage payment will also include more than just the cost of the house; it can also include things like homeowner’s insurance, property taxes, and mortgage insurance premiums.
Save Up for a Down Payment: Decrease your FHA Home Loan
A huge benefit to using an FHA mortgage is the lower down payment that is required. It’s important to know that you can increase your FHA loan approval chances by making a down payment that’s above the minimum amount. It may be worth waiting a few months to save up additional down payment funds before you apply for your FHA home loan. Plus, making a larger down payment will save you money in the long run because you’ll borrow less money and pay less interest over the life of your loan.
Have Questions About Financing a Home? Landmark Realty Can Point You in the Right Direction!
Real estate agents like those at Landmark Realty are not mortgage lenders, but they have lots of experience with finding financing. If you have questions about the best mortgage financing for you, please give us a call. We have experience with many types of homes and mortgages and can help you find the right home financing options for your situation.
