One of the things people worry about when getting a home is bad credit. This is because lenders always look at a persons credit scores to determine their risks in lending money to them. If you have a low credit rating, odds are you wont get approved for any home loan…but that was yesterday. Nowadays, you can get a home loan even with a poor or low credit rating.
How Do You Get A Home Loan With Bad Credit?
The answer to your question is to apply for an FHA loan. An FHA loan or a Federal Housing Administration loan is a type of loan given by the FHA to increase home ownership in the country. This is recommended for those who have low credit because the FHA loan allows people who have at least a 500 credit score to get a loan.
Of course, theres a catch. An FHA loan may give people with low credit ratings a chance to get a loan with a low downpayment if that person fits the requirements theyve set. These requirements are called compensating factors that will assure the FHA that the person has gone through a reasonable financial problem which became the cause of the low credit. An example would be a major hardship that became the cause for bad credit. Another compensating factor could be high income, no other current debts, and a long time employed with their current employer.
All these compensating factors will help assure the FHA that their loan will be paid. And when you have a lot of compensating factors checked, your application becomes more acceptable.
What Are Subprime Mortgages?
Other than the FHA loans, there are what you call subprime mortgages that allow people with bad credit to still get a loan for their home. But you guessed it again, theres also a catch.
A subprime mortgage refers to a loan that has a higher interest rate than the rates you will get if you have a respectable credit rating. At the same time, a subprime mortgage can also require you to pay for other things that will just add to the cost of the loan. This might be a bad move if you dont have enough money to pay.
Most subprime mortgages are in the form of ARMs or adjustable-rate mortgages which mean that you have a fixed interest rate for a portion of your loans life and after that time has elapsed, the interest rates will start to vary.
So, as you decide to take a home loan weigh-in these catches so that you are sure you are still getting a good deal in spite of a bad credit rating.