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Published: June 13, 2007
Buying a home is one of the few investments people can rely on. Even in the unlikely event that the home does not appreciate in value, one can still put their hard earned money into equity, rather than paying rent to pay off someone else's mortgage. Moreover, because everyone needs shelter to survive, a house is not a frivolous expense, but a necessary one.
Unfortunately, buying a house may be difficult for those with bad credit. Lenders may be unwilling to provide a bad credit loan, because they want to ensure a steady stream of interest payments, preferably for as long a term as possible. Moreover, many lenders require at least a 20% down payment on a home loan. Otherwise, the borrower is subject to Private Mortgage Insurance (PMI) payments, in addition to their monthly mortgage payments. For someone with bad credit, a $40,000 down payment may be impossible to achieve.
However, many federal and some private agencies now provide bad credit loans to help borrowers obtain bad credit loans with low interest payments and little or no money down. The bad credit loan is essential in helping many have the opportunity to buy a home. Such agencies include the Federal Housing Administration (FHA), Acorn Housing, and VA loans.
The first step in researching any a bad credit loan is to find a good mortgage broker. Friends and family can often provide the best references, especially if they had to obtain a bad credit loan themselves. The borrower should then ask the mortgage broker about the bad credit loan that is most applicable to their needs. The borrower can also go online to free websites to research which bad credit loan option is best for them.
According to the FHA loan website, FHA is a mortgage insurance program that provides single and multifamily housing for low and moderate income families. Generally, the FHA will provide a bad credit loan because the FHA insures a mortgage, and because FHA loans do not have minimum credit score requirements. Moreover, the borrower can put as little as 3% toward their down payment, whereas conventional lenders may require a significantly higher amount. Finally, interest rates on an FHA loans are comparable to conventional loans, since FHA loans are insured by the Federal Government.
A second bad credit loan alternative is ACORN housing. Nonprofit agencies such as ACORN have relationships with lenders that allow for flexible underwriting, lower interest rates, no Private Mortgage Insurance (PMI), and bank grants. Several lenders offer these underwriting guidelines to borrowers who have completed the Counseling Program under ACORN. Under ACORN, the borrower who seeks a bad credit loan will be will be required to attend a two and a half hour seminar, consisting of lectures from a loan officer, home inspector, realtor, insurance agent and real estate attorney. There is no cost to attend this or any other seminar provided by ACORN.
The benefits of using such a program to obtain a bad credit loan is that the borrower will be able to get lower down payment and closing costs. The borrower can also avoid paying PMI, and any source of steady income, such as public assistance or voluntary child support, will count towards determining whether or not the borrower qualifies for a bad credit loan (whereas most conventional lenders will not take these types of income into account). Therefore, it may be easier to qualify for a loan using ACORN, even with bad credit.
Finally, eligible veterans can use a VA loan to buy a home. The benefits of doing so include having no down payment, no PMI, and limits on closing costs. The VA will also provide personal loan servicing and financial counseling to help veterans avoid losing their homes during temporary financial difficulties. It should be noted that the veteran's credit history will factor into his or her ability to obtain a loan.
Conventional home loans are not for everyone, however, there are agencies that are willing to provide a bad credit loan to those who qualify. With help from agencies such as the FHA, ACORN and the VA, almost everyone can obtain a home loan. Thus, even those with less than stellar credit can still buy a house, with little or no money down.
Sources:
What are the basic eligibility requirements for FHA financing?. Federal Housing Administration. 3 Sept. 2006. U.S. Department of Housing and Urban Development. 15 May 2007.
http://answers.hud.gov/cgi-bin/answers_hud.cfg/p hp/enduser/std_adp.php?p_faqid=250&p_created=1 />Why Ask For an FHA Loan?. U.S. Department of Housing and Urban Development. 25 Dec. 2005. 15 May 2007. http://www.hud.gov/fha/choosefha.cfm.
Federal Housing Administration. National Low Income Housing Coalition. 1 March 2007. 15 May 2007. http://www.nlihc.org/detail/article.cfm?article_id =2767&id=19
Who We Are. Acorn Housing. 15 May 2007.http://acornhousing.org/TEXT/wwa.php.
Home Loan Guarantee Services. United States Department of Veteran Affairs. 2007. 15 May 2007.
http://www.homeloans.va.gov/elig2
Unfortunately, buying a house may be difficult for those with bad credit. Lenders may be unwilling to provide a bad credit loan, because they want to ensure a steady stream of interest payments, preferably for as long a term as possible. Moreover, many lenders require at least a 20% down payment on a home loan. Otherwise, the borrower is subject to Private Mortgage Insurance (PMI) payments, in addition to their monthly mortgage payments. For someone with bad credit, a $40,000 down payment may be impossible to achieve.
However, many federal and some private agencies now provide bad credit loans to help borrowers obtain bad credit loans with low interest payments and little or no money down. The bad credit loan is essential in helping many have the opportunity to buy a home. Such agencies include the Federal Housing Administration (FHA), Acorn Housing, and VA loans.
The first step in researching any a bad credit loan is to find a good mortgage broker. Friends and family can often provide the best references, especially if they had to obtain a bad credit loan themselves. The borrower should then ask the mortgage broker about the bad credit loan that is most applicable to their needs. The borrower can also go online to free websites to research which bad credit loan option is best for them.
According to the FHA loan website, FHA is a mortgage insurance program that provides single and multifamily housing for low and moderate income families. Generally, the FHA will provide a bad credit loan because the FHA insures a mortgage, and because FHA loans do not have minimum credit score requirements. Moreover, the borrower can put as little as 3% toward their down payment, whereas conventional lenders may require a significantly higher amount. Finally, interest rates on an FHA loans are comparable to conventional loans, since FHA loans are insured by the Federal Government.
A second bad credit loan alternative is ACORN housing. Nonprofit agencies such as ACORN have relationships with lenders that allow for flexible underwriting, lower interest rates, no Private Mortgage Insurance (PMI), and bank grants. Several lenders offer these underwriting guidelines to borrowers who have completed the Counseling Program under ACORN. Under ACORN, the borrower who seeks a bad credit loan will be will be required to attend a two and a half hour seminar, consisting of lectures from a loan officer, home inspector, realtor, insurance agent and real estate attorney. There is no cost to attend this or any other seminar provided by ACORN.
The benefits of using such a program to obtain a bad credit loan is that the borrower will be able to get lower down payment and closing costs. The borrower can also avoid paying PMI, and any source of steady income, such as public assistance or voluntary child support, will count towards determining whether or not the borrower qualifies for a bad credit loan (whereas most conventional lenders will not take these types of income into account). Therefore, it may be easier to qualify for a loan using ACORN, even with bad credit.
Finally, eligible veterans can use a VA loan to buy a home. The benefits of doing so include having no down payment, no PMI, and limits on closing costs. The VA will also provide personal loan servicing and financial counseling to help veterans avoid losing their homes during temporary financial difficulties. It should be noted that the veteran's credit history will factor into his or her ability to obtain a loan.
Conventional home loans are not for everyone, however, there are agencies that are willing to provide a bad credit loan to those who qualify. With help from agencies such as the FHA, ACORN and the VA, almost everyone can obtain a home loan. Thus, even those with less than stellar credit can still buy a house, with little or no money down.
Sources:
What are the basic eligibility requirements for FHA financing?. Federal Housing Administration. 3 Sept. 2006. U.S. Department of Housing and Urban Development. 15 May 2007.
http://answers.hud.gov/cgi-bin/answers_hud.cfg/p hp/enduser/std_adp.php?p_faqid=250&p_created=1 />Why Ask For an FHA Loan?. U.S. Department of Housing and Urban Development. 25 Dec. 2005. 15 May 2007. http://www.hud.gov/fha/choosefha.cfm.
Federal Housing Administration. National Low Income Housing Coalition. 1 March 2007. 15 May 2007. http://www.nlihc.org/detail/article.cfm?article_id =2767&id=19
Who We Are. Acorn Housing. 15 May 2007.http://acornhousing.org/TEXT/wwa.php.
Home Loan Guarantee Services. United States Department of Veteran Affairs. 2007. 15 May 2007.
http://www.homeloans.va.gov/elig2
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