Your credit score plays a big role in your creditworthiness. If you have a high credit score, you will get loans at lower rates. This is because lenders are convinced that people with high credit scores are likely to pay their loans on time. Hence, it is less risky to grant loans to them. The case is different for people with bad credit. They have fewer loan options and even the available options have high interest rates. If you want a mortgage and have a bad credit, you may have difficulty accessing loans but there are still loans available. The government has made it possible for people with bad credit to access loans through the three loan programs: VA, FHA, and USDA. Although these loans are backed by the government, it is still up to the lender to decide who qualifies for the loan.
Before we proceed to talk about mortgage lenders, we will first talk about the loan programs mentioned earlier. The VA home loan is one of the most popular mortgage loan programs. This package is available to veterans and does not require down payments. It does not require mortgage insurance also. There is no minimum credit score requirement, however, the facilitating lender may impose a minimum credit score. Most often, lenders request for credit scores between 580 and 620. The good thing about the VA loan program is that it does not have the risk-based pricing adjustment. This means that the interest rates do not depend on the borrower’s credit score. Irrespective of your score, the rates are the same.
The FHA loan program also does not calculate rates based on the creditworthiness of the borrower. Although, the rates for high credit score and low credit score borrowers may differ, the difference is not as significant as that of conventional loans. This means that a low credit score will not necessarily attract high interest. Although the minimum credit score imposed by the FHA is 500, most lenders will not go that low. They expect to see a credit score above 579.
The USDA home loans is another government-backed loan option. This option does not require a down payment, however, most lenders prefer to work with borrowers with a minimum credit score of 640. Although some lenders will consider a 580 credit score, such borrowers are likely to undergo a more thorough evaluation.
- Carrington Mortgage Services
The mortgage offered by this firm is backed by the government. Their loans are mostly the VA, FHA, and USDA. About 45% of people who access loans from Carrington Mortgage Services have a credit score below 650. You will need to make a minimum down payment of 3%. The application process is simple; you can complete the process online. There are also down payment assistance programs for people who are having a hard time raising the down payment.
- Rocket Mortgages
People who prefer to do everything online will love the services offered by this mortgage service. You can complete the application process online and you will not need any human help. They also offer three government-backed loans: VA, FHA, and USDA. With Rocket Mortgages, you will know the loan amount you qualify for in minutes. The minimum credit score requirement is 580 and you will need to make a down payment of 3% or more.
- New American Funding
This mortgage lender offers loans to people who do not have a strong credit history. They evaluate lenders using the manual underwriting. You can register online, upload documents, check your rate, and track your loan. The minimum credit score requirement is 580 and you will need to make a down payment of 3%.
- J.G WentWorth Homelending LLC
This firm also offers VA, FHA, and USDA home loans. People within the moderate- income bracket can also purchase homes when they engage with this lender. With this lender, you will need a minimum credit score of 580 and you will need to make a down payment of 3% to access the loan. they offer a wide variety of terms for their loan packages: they have 10, 15, 20, 25, and 30 years fixed terms for the mortgages.
- Network Capital Funding Corporation
This lender has a strong customer service team that will assist you throughout the application process. They have no lender fees and there are a wide variety loan packages for borrowers. The loan packages include VA, USDA, and FHA loans. Self-employed people can qualify for their loan packages using alternative income documentation. You will need to make a 3% down payment to qualify for this loan. You will also need a minimum credit score of 680.
- Wells Fargo Home Mortgage
This reputable financial institution has been in business since 1852. They have a simple application system where you can complete your application in 6 minutes. Wells Fargo has a program dubbed “Easy to Own”. This program makes it easy for people with limited credit history, low down payment needs, and lower income to apply for a mortgage. There are loan options that do not require mortgage insurance. Their loan packages are ideal for people who cannot afford to pay huge down payments upfront.
Tips for Improving your Credit for a Mortgage
If you have a bad credit loan, you should try to work on your credit score before applying for the mortgage. This will help you get a mortgage at better rates. If you have enough time ahead of your loan application, you can do the following to increase your credit score. You can start paying your debts on time. This is the first step in improving your credit score. You should also check your credit report regularly to make sure every item on your credit report is correct. If you spot errors, you will need to file a dispute to have them corrected. Make sure that your personal details are correct, accounts on your report are actually yours, reported missed payments are true, and even items such as bankruptcies are not due for removal.
If you realize that there is an error with any of these or any other item, you should have them removed immediately. There are high chances that once these items are removed, your credit score will increase a little. You can also allow someone who has a good credit history and score adds you as an authorized user to their account. With this, you will benefit from their good credit. However, you should only do this with someone you are sure will not stop making payments for his or her loans or credit cards along the line. This is because, once the person stops making payments or misses payments, your credit will be affected.
Another important thing to consider when you search for a good mortgage is the inquiries. Hard inquiries affect your credit score but if you do all your inquiries within a short period, it will all be counted as one inquiry and that reduces its effects on your credit score. Usually, when you inquire about the same loan type within 45 days, it is considered rate shopping and it will have a lesser impact on your score. You can also hire a credit repair agency to help you improve your credit score. These agencies will dispute errors on your credit report, and look for legal loopholes to improve your credit. They will also educate you on credit management.
Even if there is no time to improve your credit before you apply for the home loan, there are several other loan options for people with bad credit. Although there are many lenders and loan packages to choose from, it is important to work with reliable lenders only. Some problems with unreliable lenders include hidden fees. You will end up paying more than they advertised. Before you decide to work with a lender, read the terms and conditions and understand them before you proceed to sign up with them.