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Friday, March 29, 2013

First Time Home Buyers Bad Credit

What you should know when buying a home with Poor Credit

It used to be a lot easier to find lenders who would give home loans to first time home buyers with bad credit. In the past, credit scores were essentially ignored when obtaining an FHA home loan. Now, lenders won’t even look at borrowers with a middle credit score of 620 or less. Credit bureaus have also intensified the scoring models. This simply means that credit scores are lower for some people who thought their credit was doing pretty well.

While mortgage experts recommend home buyers have a good credit score, it’s no longer a requirement. Having bad credit just means that you will have to pay a higher rate, but it also means that it’s not impossible to become a home buyertoday. If you’re a first time home buyer with bad credit score, Lender411 has an in-depth Frequently Asked Questions section below to get information about loan options, increasing chances of being approved, first time buyer’s programs, and more.

What are my loan options as a first time home buyer with bad credit?

As a 1st time homebuyer with bad credit, you have three specific types of bad credit loans that you may qualify for – FHA loan, VA mortgage loan, or subprime mortgage. First time homeowners often have a hard time qualifying for equity loans because their “loan to value” is too high. In general, FHA and VA rates are 1 – 2% lower than subprime rates.

FHA loans are a great option for bad credit home loans because it requires a 3.5% down payment or less and a minimum credit score of 620. As a first time homebuyer, there are down payment assistance programs available to you to let you get into your new home with no money down.

The VA mortgage program is targeted toward first time homebuyers with bad credit who are armed services veterans. Currently, there are around 29 million veterans eligible for VA home financing. Frequently, VA loans will let first time homebuyers with poor creditpurchase a home with no down payment and will give them low interest rates. You are also eligible for this loan if you are in active duty, the reserves, or married to a veteran.

Subprime mortgages are targeted specifically toward first time homebuyers with poor credit. You will be charged a higher interest rate than someone with a good credit score, but you will be approved and will be able to get a loan for the home you want.

What are First Time Home Buyer’s Programs and how can I qualify for them?
First time buyer’s programs are made to offer benefits such as low/no down payment, low interest rates, restricting lender fees and subsidizing interest. The catch to these programs is that there is a cap on the home prices – which might limit choice of neighborhoods and areas.

For example, Fannie Mae HomePath is a first time buyer’s program with a 30 year fixed mortgage with a 5% down payment and 660 minimum credit score. This program has an income limit. Other 1st time homeowner’s programssimilar to this includes: Fannie Flex 95 Financing Program, First Home Buyers Down Payment Assistance Program and the USDA 100% Financing Program.

These types of programs are of supreme benefit to first time home buyers with bad credit. Not being able to afford a home because of your low FICO score is now a thing of the past!
How can I increase my chances of being approved for a bad credit home loan?
There are three main things that can help first time home buyers with bad credit trying to get approved for a mortgage: increasing the down payment, willingness to stay in the area, and buying a reasonable amount.

 Mortgage officers like when buyers can stay in their home for a few years. If you show reason to stay in your home for several years (a job, family, community ties, etc.) then you’ll be more likely to be approved.

Another strategy for increasing your chances of being approved for a mortgage with bad credit is to increase your down payment. Generally, getting enough money for a down payment is one of the biggest problems to buying a home. If you’re struggling financially, there are several down-payment assistance programs that you can utilize. Figuring out how to come up with the money for a down payment shows commitment and tenacity to loan officers – an impressive quality for 1st time homebuyers with bad credit.

Overall, the best strategy for increasing your home loan approval chances is to be reasonable about the house and home loan you can afford. It’s always better to start small so that the chances of losing the house to foreclosure and therefore gaining more bad credit are less.

What compensating factors should I highlight in my bad credit home loan application to offset my low FICO score?

Purchasing a home with bad credit is not an easy task, but it’s not impossible. What you’ll need to do is highlight “compensating factors” that aren’t apparent on your credit report. Here’s an example of a few things you might want to highlight along with your bad credit home loanapplication:

o Job Stability – If you’ve been working at the same job, or even the same industry for five or more years, this can easily offset a bad credit score. Also be sure to mention regular pay raises and bonuses – upward trends in income area always a good sign for loan officers and shows that you could handle an increase in utilities or property taxes.

o Monetary Assets – If your down payment isn’t sizeable enough, flaunt assets such as retirement accounts or life insurance values. This just lets mortgage bankers know that if you’re having a hard time making mortgage payments, you can pull from another source if needed.

o Self-discipline – If you can prove that bad credit is only from your past and that you know how to save, this will offset a low FICO score. Some ways of doing this are contributing yearly to a retirement account or setting aside a set amount each month to a designated savings account.

o Proof – Be prepared to show your loan officer proof of regular income or contributions to retirement. Letters from landlords saying rent was paid on time will not suffice to serve as enough proof in the case of a home loan.

o Increased Down Payment – The larger the down payment, the quicker your loan will be approved.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Gerharter Realtors is embracing these new mediums of communication to better serve our customers. We have created our e-family to better place important information in your hands to help you with your housing needs. As a part of Gerharter Enterprises we have access to a broader range of additional services and resources to better assist you. Visit me at my Web Site, Blog, Facebook, Twitter, You Tube or Pinterest. Please check out our helpful resources on Sellers Tips, Buyers Tips, Foreclosure Tips, and Mortgage Tips. For a personal consultation please visit our Office.

It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.

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