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How mortgage loans for bad credit borrowers work
A bad credit score is a huge problem. It comes with various problems and one of them is not being able to get a loan. Loans are an important aspect of our financials and are a great help when we need to buy things like homes, cars or things that are out of our immediate reach. A bad credit score makes loan processing difficult. But there are some house financing companies that help people with bad credit.
Since the housing market crash in 2008, sub-prime loans are history and this makes getting loans on bad credit very very difficult. FHA steps in here to help you out with this quandary and allows borrowers with just a 500 credit score or higher to qualify for home loans.
Generally, approval for a home loan needs you to have at least a 620-640 credit score, making it impossible for someone with lower scores to qualify for a loan. Created by the Federal Housing Administration in 1934 to increase homeownership, the insuring of mortgage loans reduces the risks lenders face. Qualifying for this Government loan is much easier than a conventional mortgage because of the relaxed loan requirements. Borrowers can choose a 15 year or 30-year fixed-rate mortgage or an adjustable one.
When we speak of bad credit home loans it often refers to an FHA mortgage, that is insured and is much less risky for lenders.
FHA is popular with first-time homebuyers since it has low credit and low down payment needs, making it easier to qualify for. FHA loans also allow borrowers to pay 100% of the down payment with gift funds. First-time buyers can also buy a home without any down payment if they qualify for a homebuyer program. Grants and down payment assistance programs are available on the HUD website.
To get an FHA loan if you have a poor credit rating then some compensating factors can help you make up for the bad credit. You will also be required to show the financial hardship that caused you to default on your monthly bills.
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