You Can Still Get a Mortgage With a Poor Credit Score

Do you think if you have a poor to no credit score you cannot get approved for a mortgage? While with certain conventional loans this is true, other options will allow you to have a minimal credit score.

One of those options is a USDA loan.

When applying for a mortgage, there are many things the lender takes into consideration. What you make every month, what your debt total is, and if your payments are less than what your income is. Your credit score is only a part of the many factors that contribute to whether or not you get approved for your mortgage.

Your credit score for a USDA loan matters, but there is another way of getting this mortgage. Let’s take a look at what a USDA loan is and how you could get one even if you have no credit.

The Basics of a USDA Loan

A USDA loan is a rural housing loan backed by the United States Department of Agriculture. The government created this program to help boost the housing market, especially in rural and suburban parts of the country. Not only that, the loan helps make housing more affordable for low-to-middle income families.

The USDA loan has some of the lowest interest rates when it comes to mortgages across the country. That is one of the major appeals to this program. On top of that, there is a low mortgage insurance rate, and 100 percent financing (you are not required to make a down payment, another significant factor).

One of the hardest parts about getting approval for a USDA loan is the location of the property. Although there is a common misconception that you must live on a farm to qualify, rather, you can live in a rural or suburban community that is only miles away from a major city. The way the country defines rural and suburban, open up many opportunities to use this program to purchase a property.

Qualifications for the Loan

There are qualifications you must meet to get approval for this loan besides the location. There is an income limit of about $82,000 for a household with up to four family members, and just under $110,000 limit for families with five to eight members. The application takes into consideration the overall income of the household and not the individual applying for the mortgage.

Other qualifications include having an acceptable debt-to-income ratio, with the maximum being 41 percent. The property must also be in decent condition.

Credit Score Requirement

As mentioned earlier, you can apply and get approval for this loan with little to no credit score. However, most lenders do have a minimum of a 640 score. Your credit score shows how reliable you are with paying back loans and credit cards.

If your credit score is under 640, there is still a chance, although much more difficult. The lender must underwrite your loan.

If this is the case, you’ll need more information for the lender. He or she will want to see how long you’ve been at your current job, if you are a good homeowner, your on-time payment history over the last year, and what your bank accounts look like (including savings and retirement accounts).

Don’t let your credit score deter you away from the possibility of getting a mortgage. See if you qualify for a USDA loan.

What Do You Need to Qualify for an FHA Loan?

One of the first things a person should realize when seeking an FHA home loan is that the FHA is not leading money directly to you. If you want to qualify for one of these loans, then you will have to submit an application through a conventional mortgage lender – just like you would with any other type of mortgage.

What the FHA does is insure the loan and provide the lender with protection from cases of borrower default. As a result, you have to meet the lender’s guidelines, as well as those that have been set by the Federal Housing Administration.

Because one of the main questions you may have is what is necessary to qualify for this program, you will find the answers here.

Down Payment

According to the current HUD guidelines, you will have to make a down payment of a minimum of 3.5 percent. That is 3.5 percent of the appraised value of the home that you are purchasing, or the actual purchase price – whichever number is less.\

The funds can be received or gifted from a family member, or from another, approved donor. While there are some FHA requirements that have leeway and flexibility built in, the down payment is something you have to have.

Decent Credit

For you to qualify for the down payment of 3.5 percent, you will have to have a credit rating of 580 – or higher. That is the official minimum score that has been established by the Department of Housing and Urban Development.

However, it is important to realize that mortgage lenders can develop their own guidelines in addition to these minimums. This is referred to as an “overlay.“ As a result, you may have to have a higher score if you want to qualify for the FHA loan. Today, most lenders want a credit rate of at least 600 for an FHA borrower.

Manageable Debt

When applying for an FHA loan, a lender is going to need proof of your current income, as well as how much debt you have to ensure you aren’t taking on too much. As a result, you have to have a manageable amount of debt to receive an FHA loan.

According to the official documents, you need a debt-to-income ratio that is no more than 43 percent. However, like with other things, there are some exceptions to the rule.

Steady Income

While this may be obvious, you have to have some type of income in order to be approved for an FHA loan. This is because you have to be able to prove that you can make the mortgage payments every month. Lenders will have to verify your employment and income prior to granting the loan, so be sure to keep this in mind.

A Home Appraisal

If you plan to use an FHA loan for purchasing your home, then you will be required to get a home appraisal. While home inspections aren’t necessary, an appraisal is, so be sure to keep this in mind.

As you can see, being approved for an FHA loan will be dependent on meeting the requirements highlighted above. Your actual lender may also have additional requirements before you receive the funding. Being informed is the best way to ensure that you get the loan you need to purchase the house you want.

When is it time to refinance your home?

The last few years have been great for those who took advantage of the low mortgage rates the real estate market has been experiencing. If you did not take advantage of it, then you missed a really good deal.

The Fed has come in the recent times to increase rates bringing an end to the days of 3.55% financing. Since it is hard to identify the best times for home refinancing, we are going to look at the best times you can use .

When the interest rates are low

The current economic climate is right for a rise in interest rates. In the start of 2017, interest rates on 30-year mortgages climbed above 4% compared to 3.55% which was in 2016. By 2019, researchers predict that it could hit 6%.

These statistics show us that paying a percentage higher than the current rate in the market should be ideal for refinancing. This is the best time to refinance before rates move higher. When you get in when the rate is low, your monthly expenses will come down by hundreds of dollars.

When home values increase

Buyers can be pushed by rising interest rates. When the potential buyers jump into the real estate market, prices will rise, and it increases the value of homes. If you are planning to refinance, this is is the best time, and we are going to explain why.

  1. You will get great terms for a house that has a high appraised value and a mortgage balance that is low. This home is a low risk when the banks come into the picture, and they can easily recoup the loss in case you default.
  2. In case you have equity that is above 20% the value of your home, you can drop the insurance of the private mortgage you purchased using the original loan. PMI costs typically 1% of your loan on a yearly basis; when you have a $100,000 loan, you will be saving an additional $100.
  3. When the home values are high, you can go for a cash-out refinancing where you can access a new loan for part of the equity of the property, instead of going for alternative loan options.

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Getting a Mortgage with Bad Credit

Buying a home can be stressful. One of the major stressors is getting a mortgage. There is so much involved and it is quite the process. To add to that stress, if you have bad credit, it can be more difficult to acquire. Is it possible to get a mortgage with bad credit? Are there ways to avoid any issues with getting a mortgage? Your answers are below.

Can you still get a mortgage with bad credit?

The short answer to if you can get a mortgage with bad credit is “yes”. You may have to shop around and may have to pay a higher rate because of it. A product called a Bad Credit Mortgage is available to consumers in this situation.The bad credit mortgage is often called a sub-prime mortgage and is offered to homebuyers with low credit ratings. Due to the low credit rating, conventional mortgages are not offered because the lender sees this as the homebuyer having a larger-than-average risk of not following through with the terms of the loan. Lenders often charge higher interest rates on these mortgages in order to compensate for the higher loan default risk that they are taking.

Are there ways to help you get a mortgage with bad credit?

Your credit score is just a piece of the puzzle the lender uses for deciding if they will give you a mortgage. Things such as employment and paying your bills on time are also indicators of approval. Often times mortgage lenders put applications through automatically and the system may reject you. If you tell them to manually review your application and look at the other positive credit factors on your file, you may have a chance. You still may need to explain your low score, but if you can prove you pay your bills on time (especially over a 12 month period) or hold a consistent well paying job, then that is a plus. If your credit score is bad because of late medical bills or student loans, they may look past the bad score as well. So this is something to bring up.

Another way to get a mortgage with bad credit is to make a bigger down payment. If you make a large down payment than the loan amount will be for less so it may increase your chances of being approved. A down payment of 20% or more puts you at an advantage.

FHA Loans

There are FHA loans which is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment. This is another option that may be able to help you as well.

As you can see, there are many resources and professionals available to help you with the mortgage lending process in the event you have bad credit or low cash reserve. It is important to use those resources so you can make your home buying dreams a reality regardless of your financial situation.

How to Use a Reverse Mortgage to Your Advantage

One of the most common fears that people harbor as they near retirement age is that they will not have enough money to maintain their lifestyle after they stop working. With the volatility of the stock market and the uncertainty of other investments, it’s easy to understand why some workers are concerned that they won’t recoup recent losses before they are ready to retire.

If this sounds like you, the best option you have is to step back and review the whole retirement picture. That means going far beyond the performance of a particular mutual fund or other investment instruments and thinking about things from a more philosophical perspective.

The money you live on after retirement is the reversal of all the saving and investing you’ve been doing since you started working. Everyone understands that, but sometimes we get a narrow view of just what defines an investment at that point in our lives.

It’s easy to think that 401(k) accounts, IRA’s, bonds, or other cash investments are the only factor in our post-retirement income. But the fact is that anything we own could potentially represent a source of money for us.

That doesn’t mean that on your 62nd birthday you empty the house and have a massive yard sale, financing your trip to Ireland with heirloom jewelry. But it does mean that a high-dollar item that has held its value can be liquidated when you no longer want or need it, and that money can help cover your retirement.

What’s the single biggest item that most of us purchase? Typically, it’s our home. We pour money into a mortgage for as long as 30 years, then hold on to it in non-liquid form until we pass it on to our heirs.

This doesn’t mean you stick a ‘for sale’ sign in the front yard and move into some tiny cottage. Quite the opposite. You can retrieve some of the money you’ve invested in your home by taking a reverse mortgage.

Before you jump to conclusions about spending your kids’ inheritance or selling yourself out of your home, spend a little time learning more about reverse mortgages.

Reverse mortgages are a great tool to re-capture some of the value of your home instead of leaving it tied up. It allows you to avoid the old conundrum often associated with aging farmers. The agriculture world says that you live poor and die rich because you invest money into hundreds of acres of land, expensive structures and equipment, and the farmhouse itself, but never get any of that money back. After you die, the farm may sell for a shocking amount of money–none of which goes to you.

It’s true for homeowners, too. You build or buy a home that’s suitable to raise several kids, entertain friends, and host grandchildren for long summer weekends. You make repairs, increase energy efficiency, and update styles to keep a modern look. Then one day you’re gone, and the house is sold off to the benefit of your heirs.

That’s not to say we necessarily begrudge our children all the money that we have. Most parents are very happy to know that they can pass along a financial windfall. But it makes no sense to have a tidy sum going to the kids and grandkids someday when you’re struggling to pay the gas bill in that large house you built for family and friends.

Getting a reverse mortgage can help you avoid some potentially unpleasant decisions, too. Some people make bad choices with their retirement dollars. Maybe you have. And now that you’re running out of time to make up for it, it’s tough to swallow that you are going to lag behind on standard of living compared to co-workers who get their gold watch the same day you do.

Of course, one of the worst things you can do in life is to put all your attention into keeping up with the Joneses. What works for them may not be the route you want to go. But if you do find it uncomfortable to think that you haven’t made as much for your retirement as others have, it’s at least a beneficial yardstick to decide what to do next.

You can avoid the discomfort of this situation by looking at a reverse mortgage. It can be more beneficial at tax time, provide less worry for you, and insulate your money from some of the crazy things that can happen to investments.

Have you no morals?

I tweeted on Saturday about an article I read over at The Motley Fool. I am pretty frustrated with the article and think it is worthy content to bring up today. If nothing else, it should at least stir a little bit of controversy in the comment section below. You can find the full article here, but here’s a quick excerpt…

For many of the underwater homeowners in today’s market, paying down their mortgage isn’t really in their best financial interest. Particularly in states like Arizona — where mortgages are nonrecourse, meaning the lender can’t go after any of the homeowner’s assets other than the property itself — it makes little sense to continue paying a large mortgage on a devalued house when comparable rental rates are far below the monthly mortgage payment.

This article made my blood boil. Have you ever seen a ninja’s blood boil? It’s not a pretty sight. I totally disagree with hate this article for a few reasons…

First, and most important, it’s totally immoral. So you may be $100K underwater on your house. But if you can still afford the mortgage, you have every MORAL obligation to keep paying. To be clear, I don’t have an issue with someone walking away from their house if they have no ability to pay their mortgage (i.e. can’t put food on the table, can’t afford gas to get to work, have become unemployed, etc), but to recommend that people walk away, even when they can comfortably afford the mortgage is ludicrous. Sure it may not be illegal to walk away, but that doesn’t mean it’s the right thing to do. Just because your home decreased in value, doesn’t mean it’s acceptable to back out of your end of the contract. Remember, when you purchase a home, you VOLUNTARILY accept the risk that comes with it.

Quite a few people that commented on the article made comments like… “Banks screw us all the time, this is just our chance to get back at them.” Ummm excuse me? If you think that is an acceptable reason to back out of your mortgage contract than please do me a favor, quit reading my blog, and go read Im-A-Big-Dumb-Head.com. Now I’m not saying banks aren’t shady, ’cause we all know they can be, but why does that suddenly give you the right to be an equally douchtastic individual? This is such a juvenile thought-process, I can’t even comprehend why someone thinks this is a reasonable excuse. Yes banks can be evil, but you walking away from your home, makes you just as terrible.

The third and final reason I can’t stand this article is because it would cause the end of the world, okay maybe not the end of the world, but the entire economy would collapse if people actually followed this advice. A commenter said it best….

so let me get this straight…the plan is for people seriously underwater to just walk away…

…. followed by a further decline in home values……then those people who WERE just slightly underwater become seriously underwater….. but thats OK they can just walk away too…..

causing another wave of declining values….eventually even those that have equity will be underwater too….but thats OK they can just walk away with the rest of em……..

If people follow the author’s advice, the amount of foreclosures would skyrocket, thus causing a downward spiral in home values nationwide. An increase in foreclosures is NO BUENO in my opinion.

I have so many other things I want to say about this article, but instead of rambling on, I’d rather hear what you all have to say. Does anyone else find this article concerning? What do you think would happen if people actually started taking this advice? What matters more, your “best” financial interest, or your morals? Is there anyone out there that can try and make sense of how this could possibly be a good thing for America? Ugh, this article makes me depressed with humanity.