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What Kind of Mortgage Can I Apply for With a Bad Credit Score?
By Francine L. HuffMortgage Credit Problems Columnist
If you have bad
credit it may not be easy to qualify for a debt consolidation loan or mortgage.
On the other hand, despite the current woes in the housing market it's not
impossible either. So where do you turn if you want to buy a home? Here are
some tips for obtaining a mortgage for people with bad credit.
What's Your Score?
Although not all lenders use the same cutoff score, if your credit
score is 620 or below, you're likely to be charged a higher interest rate.
However, some lenders have approved mortgages for people with bad credit scores
in the low 500s. Other factors like lots of available home equity can offset
credit problems to some extent. Check your credit score before applying for a debt
consolidation loan or mortgage. If you have bad credit and a score below 620 it
may be better to apply for a mortgage directly through a lender as opposed to
using a mortgage broker to get the best rate.
FHA Mortgage Loans
Despite your bad credit you may qualify for a mortgage through the Federal Housing Administration (FHA). The FHA makes is easier to buy a home than other loan programs, especially if you're a first-time homebuyer. FHA mortgages allow:
- Down payments as low as 3%
- The use of monetary gifts for down payments
- No minimum requirements for credit scores
- The purchase of a home two years after a bankruptcy
- The
purchase of a home three years after a foreclosure.
Debt Consolidation
Loan
If you already have a mortgage you may be able to begin repairing
your bad credit with a debt consolidation loan. With this type of loan you can use
a mortgage to consolidate credit card and other types of debt. Having bad
credit will probably result in a higher interest rate and fees on a debt consolidation
loan. However, in the long run you may be better off since you can pay off credit
cards that have even higher interest rates and minimum balances you may not be
able to afford. The goal is to repair bad credit with a debt consolidation loan
that lowers your overall monthly payments and helps you stick to a budget.
Keep in mind that some mortgages just won't be available for
people with bad credit. If you're in that boat, you can always try to find a
seller who's willing to finance your home purchase. Under this scenario the
buyer makes a down payment to the seller, who acts as the bank. If you choose
to use seller financing, make sure you have the contract reviewed by an
attorney and recorded with your county clerk. This will protect against the
seller turning around and selling the property to someone else or taking equity
out of the home.
Sources
Federal
Housing Administration
Consumer
Bad Credit Guide
About the Author
Francine L. Huff is a
freelance journalist and the author of The
25-Day Money Makeover for Women. She
has appeared on a variety of TV and radio shows.
About the Author
Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.
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