Most people believe they are ineligible for a loan when they have poor credit. This isn’t true at all. There are programs that work with lenders to assist in providing a home to those whose credit needs some work. In this article, we’ll look at the two main programs the best mortgage lenders in Texas use for home buyers without perfect credit. They are FHA (Federal Housing Administration) and VA (Veterans’ Affairs) loans.
FHA insures first-time purchaser loans and is a part of the US Department of Housing and Urban Development. It assists individuals with low income to borrow money for home ownership. As a borrower, you would need to pay mortgage insurance to protect the interest of the mortgage lenders in case of defaults. FHA home loans come with the most attractive interest rates since the loan is insured by the FHA.
Low minimum credit score requirements make this an ideal program for first time buyers. A mortgage with mere 3.5 percent down payment it likely for those with a credit score of 580 or higher. A ten percent down payment is mandatory for those with a score of 500 – 579. Individuals with a score of 500 or less normally don’t qualify, but the FHA will consider some difficult cases with unusual credit history or poor credit scores who meet other requirements.
Keep in mind the FHA is not a lender itself. To obtain an FHA loan, you’ll want to work with the best mortgage lenders in Texas who are an FHA approved lender. FHA acts merely an insurer and not a lender. That’s why you need to work with a Texas mortgage lender, and not the FHA.
Similar to FHA loans, the Veterans Administration (VA) is not a lender itself. The VA guarantees the loans, giving lenders extra assurance lending to veterans is a good decision. A VA loan requires no down payment and PMI (Private Mortgage Insurance) is not required. Additionally, though most lenders will look at credit scores, the VA loan program itself has no credit minimum which assists veterans with limited resources or poor credit an opportunity to become property owners.
Basic VA service requirements for this program are: 90 consecutive days of active duty service, 181 days of active duty service during peacetime, six or more years in the Reserves or National Guard Active-duty Service. Discharge from service because of hardship, reduction in force, certain medical conditions, or a service-connected disability can waive the above requirements. Individuals dishonorably discharged do not qualify for this program.
Lenders will want proof their loans in made in good faith and the borrower is a financially lower risk in other areas such as; a low debt to income ratio, no late mortgage payments in the past three years, no late payments to other creditors in the last year and five or more consecutive years of proof of income at one employer. If a reasonable set of circumstances can be explained to the lender regarding the low credit score, loss of a job, illness or death in the family, a loan may still be considered.
Neither of these programs guarantee a mortgage but give those with less than optimal credit options to become a homeowner.
Golden State Mortgage Can Help
At Golden State Mortgage, we are a California-based mortgage company. We want to help you through every step of financing your new home. Fill out the quick contact form or call Golden State Mortgage today at 1-800-536-8171 to speak with one of our California mortgage specialists and get a free good faith estimate.