It is a common misconception that there are no longer any home loans for people with bad credit. In fact, there are still quite a few options available; it just takes a little bit more looking around to find one.
When the mortgage market crashed, the first companies that were hit by the increase in foreclosures were the companies that were specializing in second mortgages, and they were directly followed by the sub-prime lenders. The result of the dramatic increase in foreclosures for both of these sectors was that almost of the banks offering these loans were forced out of business.
Prior to the crisis, a bad credit home loan was a very easy thing to acquire. It was possible to get approved for a bad credit home loan refinance regardless of your credit score. You could even get approved for bad credit home equity loans. Even getting approved for a purchase bad credit home loan mortgage was simple, regardless of how much money you had for down payment.
However, this was one of the factors that caused the housing crash in the first place, and as a result, the loans that used to be available were no longer there. However, that does not mean that there are no longer any home loans for bad credit. The FHA, VA, and USDA programs have become very good alternatives to sub-prime lending, and have remained a viable option for borrowers without tier one credit scores.
There is still no credit score required for government mortgage programs, but it will still fall on the individual banks as to what they set their own minimum credit score at. For the most part, FHA banks have universally accepted a 640 credit score as the minimum score. There are a few banks going down as far as 620, and some even lower.
For the most part, you will need to have at least a 530 credit score to get approved for the purchase of a home, but there are a couple of banks left that will still do refinances, regardless of the credit score. In all of these situations, you will need to have at least 3.5% equity in the home for approval, so you will need to have a small down payment for purchasing a home, but even 3.5% is very small for home loans with bad credit.
If you are already in the FHA program, it will be much easier to obtain a bad credit home loan refinance, however. If you have not missed any mouse payments in the last six months, there are a lot of banks that will allow you to do an FHA streamline refinance without taking in to account your credit score, or even your income.
The lending market is nowhere near as diverse as it was two years ago. Almost all of the options that were once there for bad credit loans have disappeared. However, that does not mean that they are all gone. If you just look a little harder, you will be able to find good financing at excellent terms, regardless of how bad your credit is.
Related posts: