Many people find themselves in the unfortunate situation of having bad credit. Whether it was because of past financial difficulties or just plain money mismanagement, these days you can still qualify for a home loan even if you have less than perfect credit. Home loans for bad credit do exist. The Federal Housing Administration continues to expand bad credit loans for first time house buyers. Many people are not aware that the FHA insures loans for borrowers with credit scores above 500. If your average fico score exceeds 500, there is a good chance you will be eligible for a FHA insured mortgage, regardless of how bad your credit is.
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The sad truth, however, is that you are going to pay more for your home loan than someone with good credit. To mitigate their risk, banks will charge you a higher interest rate depending on your credit score. The nice thing, though, is that you can always refinance down the road when your credit has improved. If not bad credit refinancing may still present monthly savings as FHA and VA continue to make exceptions for people with less than perfect credit.
FHA Offers Bad Credit Home Loans
The FHA is a good place to turn to for home loans for bad credit. Even if you have a foreclosure on your record, you could qualify for a low interest home loan in as little as two year after the foreclosure took place. If you have declared bankruptcy, most banks will begin offering decent rates on home loans about four years after the discharge. However some will not recommend a bad credit FHA loan because in as little as six months after your bankruptcy but you may be required to put down a larger down payment (up to 35% of the amount borrowed). Subprime mortgages specialize in lending to people with very risky credit. However, interest rates are generally very high with these lenders.
Look at House Loans for People with with Low Credit Scores
Getting approved for a home loan with bad credit takes some preparation and work. The first step would be to try and improve your credit, particularly if you have declared bankruptcy. Get a major credit card and begin using it judiciously. Make your payments on time every month to establish a good payment history. The longer you can do this before applying for a loan the better your credit will look. Make sure all three of your credit reports are accurate. Even minor misreported information can have a major negative effect on your credit.
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Banks that provide home loans for bad credit are most interested in your ability to pay the loan off. Therefore, you will need to establish steady employment for a minimum of two years. It is a good idea to use a mortgage calculator to determine what your mortgage payment is going to be every month and ensure that number is no more than 30% of your monthly income. Lastly, save at least 10-20% for the down payment on the home. The bigger your initial investment the more comfortable banks will be with lending you money. Additionally, a bigger down payment can also trim a few points off your interest rate. FHA may not offer bad credit loans forever, so take some initiative now and speak with a HUD approved loan professional. Take a minute and discuss your goals with our reps who have extensive experience with bad credit FHA loans.