Nearly everyone dreams of owning their own home one day, but the road towards that goal can be incredibly long for some. Often, your financial situation is less than stellar, and life tends to throw emergencies at you just when you think you may be able to make that down payment. For those people, there is some good news. The Federal Housing Administration (FHA) has a loan program that could allow you to finally live the dream of home ownership. Read on to learn more about how your credit and financial problems may not necessarily prevent you from buying a home.
The credit score problem.
You know that lenders are looking for a nice, high credit score, and that those with higher scores tend to have an easier time of financing and getting a low interest rate loan. If your credit score has suffered some damage from past issues, you may still be able to get an FHA loan. As long as you can get your score up to 580, you may qualify for this type of loan. Being able to qualify for a mortgage at that level means coming up with a mere 3.5% down payment to go along with the deal. That means that for a home that costs $100,000 you would need to provide just $3,500 down. Many conventional lenders can require you to come up with up to 20% down, which would be a whopping $20,000 down payment, but with an FHA loan, saving up for that down payment is much quicker and easier.
If your score is below 580, there may still be a loan for you from the FHA. If you are able to save up a little more, say 10%, of the purchase price for a down payment, you may qualify for a loan with a credit score below 580. Your score must be at least 500, however.
The bankruptcy problem.
If your financial issues have been severe enough, you may have been forced to declare bankruptcy. Normally, this is big red flag for lenders and could prevent you from qualifying for a conventional mortgage. Not so with an FHA loan. If you have a bankruptcy, it must be at least two years in your past (from the final order, not from the initial filing). Additionally, you need to show that you have improved the way you deal with credit and finances since the time of that bankruptcy. The FHA lender is looking for people who use credit wisely and carefully and will looking at factors like:
- The amount of credit you have available to use.
- The percentage of debt available that you are currently utilizing. For example, if you have a credit card with a $3,000 limit, they want to see that you are using a certain amount of that limit, but not too much of it.
- The number of credit inquiries you have on your record in the past few years.
- The number of times you have been late, and exactly how late you were with your debt obligations.
- Collection activity and charge-offs since your bankruptcy.
- The number of open accounts.
Your real estate agent can point you in the right direction if you are interested in this type of opportunity.