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.

How To Get Approved for a Home Loan as a First-Time Buyer

Home Loan

Owning a home for the first time is an exciting opportunity, but it is one you need to approach wisely. Because this is a significant financial decision, you’ll want to learn how to get approved for a home loan that’s affordable for you and your situation.

One survey shows that the median home price for first time homebuyers in the United States is $182,500. These buyers had a median down payment of 6 percent and were 32 years old, on average. With so much at stake, you want to be sure you’re buying the right home with the best loan available to you.

If you’re ready to start the home loan process, TwinCity Lending is available to help you. Contact us now for a free home loan quote.

Home Loan

Are You Financially Ready to Buy a Home?

At the heart of the process of getting approved for a home loan is understanding your overall financial health. Your lending specialist can help you with this process. But it’s best to have a clear picture of your finances already before you begin house hunting.

  • How much money can you commit to each month for a mortgage payment?
  • Are you prepared for increased costs for utilities and maintenance?
  • Have you factored in mortgage and homeowners insurance?

It’s always wise to know your credit score, too. Work to improve your score by using debt wisely and keeping the amount low. All of this helps you to show lenders you’re a good credit risk. 

What Type of Loan Programs Can Help You Qualify?

There are ways for first-time buyers to get approved for a home loan. Several mortgage programs can help support those efforts. Take a look at some options that may fit your goals.

FHA Loans

One of the most commonly used home loans for first-time homebuyers is the FHA loan. Approved lenders, such as TwinCity Lending, can help you qualify for a home loan through this federally-backed program. There are a number of benefits:

  • Lower down payment requirements – You’ll typically need just 3.5 percent of the purchase price in a down payment to secure a loan.
  • Lower closing costs – These fees are less than in conventional loans, reducing how much cash you need to close.
  • Lower credit score requirements – FHA loans can result in approval for some people even with a score of just 580.

VA Loans

Home Loan

VA loans are much like FHA loans in the benefits they offer. The difference is the U.S. Department of Veterans Affairs backs these loans for current or former members of the U.S. Armed Forces. TwinCity Lending can also help you secure these loans. VA loans typically offer:

  • No down payment requirement for most borrowers
  • Low credit score requirements
  • Lower closing costs

If you believe you would qualify for these loans, be sure to speak to your lending specialist about the options. Many borrowers will find this is an excellent way to secure a mortgage as a first-time buyer.

Tips to Help You Secure a Home Loan as a First-Time Buyer

When you meet with a mortgage broker, he or she can provide you with step-by-step information about how to get approved for a home loan. Use these tips to make the process smoother by being prepared:

#1: Seek Pre-Approval Before Looking for a Home

Bring your proof of identity, income, and expenses with you to your loan consultation. This is an opportunity to gain pre-approval, telling you how much you are likely to qualify for a home loan. If you have any concerns about qualifying, be sure to speak to your mortgage specialist about this.

This step is essential in helping you determine a budget for your house hunt. Your broker will be able to give you a good picture of the full financial commitment. Having pre-approval also gives you much better odds of a seller accepting your offer. When a seller sees that a potential buyer already has lending pre-approval, they are much more likely to agree to your offer. This piece is especially critical in hot markets.

#2: Work with a Real Estate Agent to Find the Ideal Home

While your loan is in initial processing, it’s time to find a real estate agent to be on your team. With any home loan, the property will need to pass a full inspection. Your real estate agent will be able to help you find a house that is perfect for you.

If you hope to buy a home that’s a fixer-upper, be sure to talk to your loan specialist about this opportunity. There are options available, such as a 203(k) home loan, that may help with this approval process.

#3: Answer the Underwriter’s Questions

Home Loan

During this time, you will also need to provide proof of income or verify information about the debt you already carry. You may need to provide tax returns and references to your lender, too. The sooner you respond and submit the requested information, the better. If you drag your feet in providing information or signing documents, the home loan process will take a long time.

#4: Bid on Your Home and Close Your Loan

Once you find your desired home and enter into contract, you can then move forward with the loan closing process. Closing on your home means you sign the contract for your mortgage and finalize the purchase. Be prepared that you may need to provide additional information or verify data right up until closing time.

The good news is that your lending specialist will work with you to make the entire process of getting a loan as easy as possible. Your mortgage broker is an expert in all the details. 

TwinCity Lending Is Your Premier Minneapolis Mortgage Broker

Work with our team at TwinCity Lending to learn how to get approved for your home loan. We typically can close on your home loan within two weeks of an accepted offer, as long as all documentation arrives promptly. Reach out today to get started on your first home purchase. 

10 Top Steps to Getting Your Mortgage Approved

Family

Bob Hope once said, “A bank is a place that will lend you money if you can prove that you don’t need it.” At TwinCity Lending, we understand that you are going to need “it” to get the home of your dreams. That money usually comes in the form of a mortgage, and we are here to get you that stamp of approval in no time at all.

Contact us for all your mortgage and refinance needs. In the meantime, follow the 10 steps below to boost your approval odds when it’s time to apply for a home loan.

Business Credit Score

1. Check your credit history report and credit score.

Checking your credit score is first on the list because if there is a problem, it may not be a quick fix. Pull a current credit history report and correct any mistakes you find.

Many banks and credit cards are including a free credit score report with every statement. Some of their websites and apps have tools that will help you try out different scenarios to see how you can improve your score. However, check out the remaining steps before you get too carried away.

2.  Don’t open or close any new credit accounts.

The first thing you might be tempted to do is close old credit accounts to clean things up a bit. Closing credit card accounts is a bad move since it may raise your debt-to-credit ratio. If your next thought is, “Well then, maybe I should open a few more accounts to lower that ratio” – stop.

Opening new credit accounts can adversely affect your credit score. Hard inquiries on your credit report counteract improvements you’re trying to make. Opening accounts will do more damage to your approval odds in the short term. So hold off on that new car.

3.  Stay at your job.

Lenders usually require proof of income for two years and may not consider your income stable if you haven’t been in one position long enough.

Even if you stay within a company, don’t switch to a job that pays by commission, or lowers your salary. It doesn’t look good in the short term for a loan application. Lenders want to know that you are going to have the income moving forward to pay back the loan. 

4.  Don’t move money around.

Lenders will require at least two months of bank statements to verify all funds being used for the loan.

If you are moving money around for convenience, such as from savings to checking to pay bills, this can also be seen as a red flag. It may appear that you are depleting your down payment funds, and it creates a messy paper trail to document.

Save Money

5.  Save for your down payment.

When you know how much cash you will be able to produce at closing, then your mortgage broker can find the right loan for you. There are programs to help with down payments for qualified borrowers. But the more you can put down, the more options you will have in obtaining a mortgage. Having a sizable down payment will go a long way to getting that stamp of approval.

6. Check your budget.

Just because a lender approves you for a certain amount, doesn’t mean that is what you genuinely can afford. When you consider a monthly mortgage payment, you need to take into account:

  • The amount of the loan
  • Private mortgage insurance (PMI), which is required until you have at least 20% equity
  • Homeowner’s insurance
  • Property taxes

When calculating what you can afford, don’t overlook the last two items which often roll into escrow accounts attached to the mortgage. Use one of the many calculators on our site to help you determine what’s feasible for you.

7. Know the different types of loans.

The home loan market has a wide variety of options. Your TwinCity expert can help you navigate any of the following:

  • Conventional
    • Fannie Mae
    • 80/10/10 Piggy Back
    • HomeReadyTM
    • Freddie Mac Home Possible
    • Conventional 97
  • FHA
  • VA
  • USDA

Don’t worry.You don’t need to become a mortgage expert. It is our job at TwinCity Lending to help you with your questions and find the best solution for you.

8. Look for down payment assistance.

If the numbers still aren’t working completely in your favor, you’re not alone. According to a US News article, “61.7 percent of millennials who want to buy a home said they can’t afford a down payment.” Millennial or not, if you need help, there are options available that don’t include asking Mom and Dad.

Many of the loan types listed above can be a starting point for down payment assistance loans.

State housing finance agencies and local housing authorities can be sources for down payment grants. These grants are not just for low-income borrowers. They are for qualified wage earners that don’t have enough saved yet.

9. Get pre-approved.

In today’s housing market, you almost can’t make an offer on a home without completing this step. And pre-approval is a bit different from pre-qualification.

A letter of pre-qualification from a lender indicates that you have provided some basic information about your finances and have discussed possible loan options. It shows that the bank believes you can qualify for a loan up to a particular value, based on that information. 

Getting pre-approved, however, requires a more in-depth review of your income, assets, debts, and credit history. And all of that information has supporting documentation from you. 

This type of review carries more weight with sellers and indicates you are more serious. All the information is re-verified at closing.

Pro Tip: Continue with Steps 1-5 above up until the day of closing!

10.  Have your paperwork ready.

paperwork

Gather all the documentation you need before applying. Your mortgage broker can give you a precise list, but in general you need the following:

  • Pay stubs going back 30 days
  • W-2s going back two years
  • 1099 forms if you are self-employed
  • Proof of any bonus income
  • Documentation of any other income including dividends, stock earnings, spousal or child support, social security, or disability awards
  • Pension statements
  • Documentation of assets such as stocks, bonds, and life insurance
  • Bank statements going back 60 days
  • Tax returns going back two years
  • Proof of homeowner’s insurance

Having all this paperwork on hand will make you approval odds that much better.

Can you see that stamp of approval yet?

Follow these steps, and you will be on your way to a home loan approval. What are you waiting for? Come see us at TwinCity Lending, and start looking for that dream home right now.