Trying to find the right financing to buy a home can feel a little like pulling teeth. This is especially true if you have a lackluster credit score and hiccups in your financial history. But don’t worry! Even if you’ve struggled in the past, you still have options. Read about some of the home loan alternatives for those with poor credit, so you can get the funding you need to close on your dream home.
When you’re looking for alternative home financing, one of the best options you have is what’s called an FHA loan. The Federal Housing Administration funds these loans. Because they are government-sanctioned, a lot of the inherent risk of loss that comes with more traditional home loans is, in the majority, not an issue for lenders.
Just as well, while there are specific requirements you must meet to qualify for an FHA loan, they have a much more lenient credit criterion. So they are especially appealing to those looking to buy their first home but maybe don’t have the best credit.
Benefits of FHA Loans
FHA loans are incredibly beneficial for both lenders and loanees. The loanees benefit from these loans because their credit is not a significant factor in getting approval. Just as well, these loans also allow borrowers to roll their closing costs into their monthly mortgage payments.
Additionally, lenders can decrease initial down payments significantly, so homebuyers aren’t immediately overwhelmed with expenses. As for the lenders, their investment is wholly protected should you ever decide to default on your loan.
This type of loan is similar to an FHA in that government entities also fund it. The US Department of Agriculture designed USDA loans to give low-income homebuyers living in rural areas a way to finance their mortgages without the hassle that traditional loans tend to include.
Like many government-funded loans, USDA requires that loanees have a credit score of 620 and an income limit of 115 percent of an area’s median income. These loans also require that your property interest constitutes a primary residence and you have had a stable employment history for at least two years.
Benefits of USDA Loans
USDA loans make it possible for low-income homebuyers to snag their dream houses with reasonable qualifications and high approval odds. These loans also provide 100 percent financing for loanees, which means borrowers don’t have to worry about annihilating their bank accounts trying to afford a down payment.
Additionally, these loans allow borrowers to finance their closing costs. So they never have to worry about paying an arm and a leg to close the deal on their new home. Lastly, USDAs have famously low monthly mortgage insurance premiums, and millions of people are eligible for approval with this type of home loan.
So if you’ve got some blemishes in your financial history and are looking for financial backing, take solace in knowing that there are plenty of home loan alternatives for those with poor credit.