Can I Get an FHA Home Loan With Bad Credit?

Get An FHA Home Loan

Having bad credit doesn’t always have to stop you from buying a home. If you have a steady income that allows you to make a monthly mortgage payment, you may be able to get an FHA home loan even with bad credit.

There are several pieces of your financial health that a lender will look at, but there are options for those with credit challenges. Working with a mortgage broker is the best choice for finding a home loan package that will work for you.

At TwinCity Lending, you can learn how to get a home loan from our lending specialists. Contact us to learn more about the options we offer.

Will an FHA Home Loan Help You Buy a Home?

The Federal Housing Administration (FHA) provides financial backing to qualified consumers. The FHA is not the lender for your home loan. Instead, they insure the loan so that lenders are willing to extend credit to borrowers who don’t qualify for traditional mortgages.

This program offers potential buyers the chance to secure a home loan even if they do not have a high credit score or a large down payment.

Credit Score for Home Loans

A conventional mortgage typically requires a buyer to have up to a 20 percent down payment to purchase the property. It also generally demands credit scores of at least 700 to secure a home loan with the best interest rates. FHA loans are different.

The benefits of an FHA loan are numerous. They can include:

  • Lower interest rates on the home loan you secure
  • Reduced closing costs
  • Lower down payment requirements
  • Improved access to credit with lower application requirements
  • The ability to purchase a more expensive home due to the lower interest rate

Every situation is different. Even if you have bad credit, you may qualify for an FHA loan so that you can enjoy the benefits of homeownership.

What Are the Eligibility Requirements for an FHA Loan?

There are a few things you need to know about how to get an FHA home loan. Not everyone with bad credit will qualify. Those who wish to buy a house using this type of loan still need to provide proof of income to show they can make a consistent monthly payment.

To obtain an FHA loan, you must have a minimum credit score of 500. If your number is higher than this, you may qualify for additional savings opportunities. If you have a credit score of at least 500, you may be eligible to borrow up to 90 percent of the home’s sale price. This opportunity means you would need to provide only 10 percent as a down payment.

Some borrowers who have a score of at least 580 may benefit for additional financing opportunities. Your down payment requirement drops to just 3.5 percent at that point.

In addition to credit score expectations, other requirements exist. You will need to show:

  • Proof of consistent, adequate income
  • A debt-to-income ratio that is within the lender’s range
  • Proof that the property is in good enough shape to qualify

Your TwinCity broker will help you learn if you’re eligible to get a home loan using the FHA program. We can answer all of your questions about the requirements.

What If Your Credit Score Isn’t That High?

As noted, FHA does not provide home loans. Traditional lenders do. That means you still must meet the lender’s standards for borrowing money.

The FHA backing offers protection to the lender since it is riskier to provide a loan to someone with poor credit. Should you default on the loan, the FHA will pay the lender for their losses. Thanks to that financial protection, the lender is willing to extend you a mortgage at a reasonable interest rate.

If your credit score is lower than 500, the FHA may not be willing to approve your loan application. That means lenders would face a significant risk. This risk will likely mean they will not offer you a home loan. If you have a sub-500 credit number, consider following these tips for improving your credit score before you try to secure a mortgage.

Pay Down Your Debts

Get Rid of Debt

Instead of using credit, make purchases with a debit card or cash. Focus on paying down or eliminating consumer debt to lower your debt-to-income ratio. This ratio is a significant piece of the lending picture. If you have too much debt compared to your income, a lender will not risk extending you a loan. 

Check Your Credit Report

You can get a free copy of your credit report every year from each of the three credit bureaus. Take advantage of this service and check that everything on your credit report is up-to-date and accurate. Errors will lower your credit score, so address them quickly. 

Make On-Time Payments

One of the most significant impacts on your credit score is your ability to make payments on time. Use auto-pay features with your utilities and credit card companies to make sure the payments are never late.

Avoid Opening New Lines of Credit

When you are preparing to seek an FHA home loan, or any mortgage option, don’t open new lines of credit, such as new credit cards. Even if a new credit card has a zero balance, it raises a red flag to lenders. It is potential debt, and it gives them pause.

Consider Debt Consolidation

There are no legitimate companies that can repair your credit for you. Instead, ask your lender if there are options for consolidating your debt to pay it down faster. You might want to seek help from consumer credit bureaus as well. And once you do secure an FHA home loan, the TwinCity experts can explain how to use your home equity for debt consolidation when the time is right.

Ready to Apply for an FHA Loan?

Make a Budget

As you work with a lender to determine if you qualify for an FHA home loan, continue to make all the right financial moves:

  • Build up your down payment.
  • Create a budget and stick to it.
  • Pay down your debt.
  • Consider adding new income, if possible, to help boost your ability to qualify.

If you want to learn how to get an FHA loan or to learn about applying for any home loan, contact TwinCity Lending. Our team can help you to find a mortgage package that will work for you, even if you have less-than-perfect credit. Reach out today to schedule a no-obligation consultation with our team.

Your Guide to the Mortgage Interest Deduction: It’s Not Gone!

Mortgage interest tax deduction

As 2019 is coming to a close, most of us turn our attention to end-of-the-year festivities. Along with great food and joyous time with friends and family, the end of the year also means taxes. Because nothing says “party” like talking tax law and mortgage interest deductions.

So as you embark on the holiday season, you are probably eagerly anticipating tax time right around the corner. No? Just us?

Regardless, if you are a homeowner or are considering buying a house, it’s essential to have accurate information about the tax benefits. It is especially crucial to understand how your mortgage interest factors into taxes.

Get your ducks in a row

Every year it is important to get your ducks in a row to make sure you are prepared for the annual rite of taxation. Part of that preparation includes becoming knowledgeable about what you can deduct and what you cannot.

And to add a little spice to the meatball this year, the Tax Cuts and Jobs Act (TCJA) kicks in. This tax reform bill arrived on the scene in 2018, but it did not kick in to affect tax returns until this year.

The TwinCity Lending team is here and ready to help you become a homeowner so that you can take advantage of the associated tax perks. Reach out today to ask questions or start a loan application. You’ll be in the home of your dreams in no time.

Tax Reform Misconception

In addition to changes in tax brackets, tax rates, family benefits, and standard deductions, there is a change in the mortgage interest deduction. Unfortunately, many homeowners mistakenly think that this tax break disappeared with the new law. 

There has been a lot of uproar over this supposed elimination of the deduction. But it didn’t go anywhere. It just changed. If you are a homeowner, it is likely you still qualify for this deduction. But first, let’s review and clarify what your mortgage interest is.

What Is Mortgage Interest?

Mortgage interest is the amount of money you pay for the privilege of borrowing the money needed to buy a home. When you fill out a loan application and seek preapproval for a home loan, the lender will tell you what interest rate you will pay to borrow the money. This rate works just like the interest on any other credit card, student loan, or car loan. But mortgage interest rates are generally much lower than others. This amount will be part of your mortgage payment each month.

Your monthly payment will generally cover the following obligations:

  • Principal loan amount
  • Interest charges
  • Mortgage insurance, if required
  • Homeowner’s insurance, if not paid separately
  • Property taxes, if not paid separately

Historically, those who own homes have been able to include the amount they pay in mortgage interest in their itemized deductions on tax returns. This tax benefit lowers the person’s taxable income, potentially saving them money.

Did the Mortgage Interest Deduction Disappear?

Mortgage interest

No, it did not go away. It’s still there, and most homeowners can take advantage of it.

Under the old law, homeowners could deduct the mortgage interest on a principal loan amount of up to $1 million. They also could deduct interest on home equity loans of up to $100,000. These deductions applied to primary residences or second homes.

So what changed? Taxpayers who are married and filing jointly now may deduct the mortgage interest on loan amounts of up to $750,000. The number is $350,000 for individuals. So although it is different now, the mortgage interest deduction is still around. And many people can benefit from it.

There is even more good news. If you acquired your mortgage before December 16, 2017, the old limits apply to you. So it is not all gloom and doom, as you may have heard. Securing a home loan and buying real estate is still a worthwhile financial goal.

Can I Still Deduct the Interest on Home Equity Debt?

This question doesn’t have as clear-cut of an answer. The tax bill removed the home equity interest deduction in some circumstances.

Specifically, to deduct this interest now, a homeowner must use the loan to buy, build, or make large-scale improvements to their primary or secondary residences. 

The new tax law changes keep valuable tax deductions within reach of most homeowners. The majority of home loans qualify the taxpayer to claim the mortgage interest deduction.

And a home equity loan or line of credit remains a great option to pay for big-ticket items. It can make it possible to get a new roof, a kitchen remodel, or an awesome second home.

And even if you need to use home equity for other needs, such as debt consolidation, it can still be a smart idea to do so. The interest rate for HELOC options typically is much lower than the rate on credit cards and other consumer debt. So it can be a worthwhile plan, even if you can’t deduct the interest. TwinCity Lending can help you get this started.

Get a home loan

Is Homeownership Still the Right Choice?

Buying real estate is absolutely the right move when it comes to building long-term wealth. Even with the tax reform changes, most homeowners will be able to deduct their mortgage interest. 

Any time there are sweeping changes to tax laws, misconceptions and myths can make the rounds. But the new bill does not eliminate the mortgage interest benefit as some do believe. This long-standing deduction has helped homeowners for decades, and that isn’t changing. 

TwinCity Lending Is On Your Side

Regardless of how the new tax rules affect you, the experts at TwinCity Lending are here to help you through the home loan process. We are a concierge mortgage broker team, and our experience and training have us ready to answer all of your home loan questions.

Whether you are just getting started as a home buyer or want to add to your existing real estate portfolio, we have you covered. We offer competitive mortgage interest rates and can help you with programs for veterans, first-time buyers, and more.

Reach out today and let our experienced staff make your dreams of homeownership a reality.

Top Six Reasons for Buying a Home During the Holidays

Buying a home at Christmas

The holidays are just around the corner. Chestnuts are roasting, and lords are leaping. It’s a busy time for most people as the events and gatherings fill up their days and evenings. In spite of how busy this time of year is, buying a home during the holidays is one commitment you may want to add to your calendar.

The holidays can be an excellent time to purchase a house. Seriously. That may come as a surprise, but buying a home at Christmas can be one of the best decisions you will make. With all the hustle and bustle of the season, it may feel like the worst time to attempt something as big as buying a home. But the savvy house hunter finds that crucial factors work in their favor over the holiday season.

Getting a home loan

If you are considering buying a home, don’t let the season stop you. The experts at TwinCity Lending have all the tools you need to get a home loan no matter the time of year. It is essential to understand the home buying process in general and make sure you set yourself up for success when buying a home during the holidays.

Home buying during this time of year creates some challenges. But it also offers fantastic benefits. You may be surprised by these six perks to house hunting in the offseason.

1. Not As Many Buyers Competing With You

Probably the most significant advantage of buying a home during the holidays is that most people don’t do it. Typically, the housing market is much brisker in the spring and summer months than it is November through January.

There are many reasons for the downturn in buyers during the winter:

  • inclement weather 
  • hectic schedules
  • travel plans
  • mid-year school changes

Whatever the reason, fewer people shop for homes during the holiday season. This slow down is great news for you if you are buying a home at Christmas. So as others busy themselves with silver bells and sleigh rides, you can take advantage of the lack of competition. You will have an excellent chance of getting into the home you want during the holidays.

2. Sellers Are Highly Motivated to Sell

Buy a home during the holidays

With fewer buyers in the market, sellers are looking to please you and woo you. Many people who put their homes up for sale during the holidays are eager for the process to happen quickly. They may want to be in a new home of their own before Christmas, making them quick to negotiate in your favor.

You are likely to get a more favorable deal on a property during the fall and winter. You would probably have to pay more if you were to buy the same home in May or June. Since these months are notoriously difficult for sellers, it may mean that they need to sell and move quickly for some reason.

While it may not be good timing for them, it could be excellent timing for you. Be sure you get preapproved for your home loan to help things move even more quickly. Your TwinCity team can help you prepare.

3. A Need for Speed

For various reasons, many people involved in real estate transactions like to finish everything before the new year begins. Sellers may need cash quickly or want to move before Christmas arrives. Buyers may want additional tax deductions for the calendar year. Real estate agents might be looking to meet a personal year-end goal.

This desire for speediness could mean a faster closing process for you. Sellers may not quibble over repairs and the sale price so that everything will move faster. 

When you work with TwinCity Lending, we can usually close within two weeks once we have your loan application and all of your documents in hand. The holiday season is a motivating time. Everyone is eager to get things done so they can move on to the festivities and family gatherings.

4. Lower prices

Isn’t everyone looking for good deals over the holidays? Black Friday, anyone? Winter months historically have the lowest property prices, so buying a home during the holidays is great for bargain hunters. And when you add motivated sellers to low home prices, you get a perfect market for eager buyers.

Save money buying a home at Christmas

In addition to lower home prices, you may find that related services are cheaper too. The holiday season is a slow time of year for painters, handymen, and movers. You may be able to find an amazing deal from someone who wants to fill their work calendar.

5. Eager Real Estate Agents

Realtors are just as eager to earn a living at Christmas as any other time of the year. Since it is a slower season for them, your agent may not have as many clients to juggle as they usually do. They will be able to give you a lot of time and attention. And they can move quickly to get you under contract on the home of your dreams.

6. Year-End Deals

Furniture, flooring, and so much more tend to go on sale at the end of the year. Stores need to clean out inventory, and they want to make you a deal. Buying a home during the holidays can mean that you can find end-of-the-year sales on everything you need for your new house.

TwinCity Is Your Lender for Buying a Home During the Holidays

Clearly, there are plenty of reasons for buying a home at Christmas. It is not always a simple decision, but the benefits of holiday home shopping are fantastic. You will have less competition and save money. It’s a great time to be a buyer.

So if your schedule allows and you don’t mind some winter weather, consider trying out the holiday real estate market. Buying a home this time of year could turn out to be one of the smartest decisions you will make. 

New home at Christmas

Your TwinCity Lending team is here to get you home for the holidays. From filling out your loan application to closing on your new house, we make sure the process is smooth and painless. Reach out today to get started.