Bad Credit Home Loans Are Available Again in 2015

If you have bad credit and feel that home ownership is out of reach for you, well that might not be the case. If you would like to buy a home but your credit is not as good as you would prefer it to be it does not mean that you cannot get a mortgage. This is not to say that getting a mortgage with bad credit is easy either, in fact it can be a rather difficult task to do. Yet the benefits of home ownership make the time and effort well worth it. When you rent you are making someone else wealth, when you own your own home you are making wealth for yourself, even if you have a mortgage for 30 years you are still creating wealth for yourself with every payment on the principle. Payments to your principle equal equity in your home and equity can be cashed out should you ever sell your home, it is also a way to secure a loan should you ever need one. Last but not least property values can increase.

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To obtain a conventional mortgage you are likely going to need a FICO score of 620 at a minimum. You should as a rule of the thumb also have 12 months of on time payments listed on your credit report for all of your bills and loans, especially your loans. Your debt to income ratio which is the amount of your income that goes towards debts needs to be no higher than 43% as a general rule of the thumb as well. These of course are general guidelines and exceptions can and are made, especially for those who are rather close to this mark. If you are close to these guidelines by all means apply for a traditional mortgage, you may very well get it.

Now if your credit and current life style situation does not meet the above criteria, that doe not count you out on a mortgage. You can always go for an FHA loan through the Federal Housing Administration which is part of the U.S. Department of Housing and Urban Development. What is the difference between an FHA loan and a loan through a traditional lender? The FHA helps people obtain loans without needing to meet every single requirement traditional lenders often require. Many people going for an FHA loan also cannot meet the closing costs and other fees associated with a mortgage so the FHA also helps here with lower down payments even as low as 3.5%. The FHA partners with banks and insures at least part of the loan. This in turn allows banks to take on a higher risk pool of borrowers.

This means you could apply for an FHA loan with a FICO score as low as 580
. Banks still have the final say and can deny someone with a score that low so it may take you awhile before you find the right lender willing to work with you. You can always work on bumping up your score just enough, and if a bank turns you down you can always ask them what the minimum is that they are looking for as far as an FHA loan goes. Once armed with this information you can do what is needed as far as your debt to income ratio, credit utilization and credit score goes. It is not that hard to bump your credit score up by 50 points for example.