THE BEST HOME LOAN PROGRAMS FOR BORROWERS WITH POOR CREDIT
Credit scores are an important part of these programs eligibility criteria, other conditions will apply.
• FHA LOAN
Minimum credit score: 500
Loans backed by the Federal Housing Administration (FHA) offer more flexible lending requirements than traditional bank loans. Borrowers with credit scores of 580 and above can get a home loan with a down payment as low as 3.5 percent. Borrowers will need a down payment of at least 10 percent with a credit score between 500 and 579.
FHA loans are available in 15- or 30-year terms, and rates may be fixed or adjustable.
FHA borrowers are required to pay both upfront and annual mortgage insurance. On a typical 30-year mortgage with a base loan amount of less than $625,500, the annual mortgage insurance premium would be 0.85 percent as of this writing. The current upfront mortgage insurance premium is 1.75 percent of the base loan amount.
• VA LOAN
Minimum credit score: 620
Veterans with poor credit have an additional option: loans backed by the U.S. Department of Veterans Affairs (VA). VA loans do not have a minimum credit score requirement. Instead, the VA requires a lender to “review the entire loan profile to make a lending decision.” However, because VA loans are offered by VA-approved lenders and not the VA itself, individual lenders may have their own requirements. The full loan can be financed with zero down if the borrower has a 560+ credit score with lender discretion.
VA loans are available in 15- or 30-year terms, and rates may be fixed or adjustable. VA loans do not require mortgage insurance, although there is a one-time funding fee. The funding fee
varies by the type of veteran and the down payment percentage, but it typically runs from 1.25 to 2.4 percent of the loan amount. Veterans receiving VA disability compensation are exempt from the funding fee. To apply, you’ll need a Certificate of Eligibility (COE).
• USDA LOAN
Minimum credit score: 620
One of the least known, most misunderstood, yet beneficial mortgages is a U.S. Department of Agriculture (USDA) guaranteed home loan. Many think of USDA Guaranteed Loans for very low income, small purchase prices, and only for properties way out in the country. Not so! Many U.S. properties are eligible and middle-income families often meet income limit requirements. Additionally, USDA loans are flexible when it comes to credit scores.
This program assists approved lenders in providing low- and moderate-income households the opportunity to own a primary residence in eligible rural areas. Eligible applicants may build, rehabilitate, improve or relocate a dwelling in an eligible rural area.
Most lenders underwriting USDA loans require a minimum credit score between 620 and 640 with no significant delinquencies, foreclosures or bankruptcies in the past several years.
The USDA offers fixed-rate mortgages in 15-year or 30-year terms.
To qualify, the residence must be located in an eligible area. Borrowers are subject to income limitations of no more than 115 percent of the median income for the area, and the home must be used as the borrower’s primary residence.
If you qualify for a USDA loan, you can buy a home with no down payment and may use gifted money to pay closing costs. The USDA does not require mortgage insurance, but does require an upfront premium of 2 percent of the purchase price of the home, although that 2 percent can be financed as a part of the loan.
• FANNIE MAE HOMEREADY PROGRAM
Minimum credit score: 620
The HomeReady program is offered by Fannie Mae, the largest backer of mortgage credit in America. Typically, the minimum credit score for a HomeReady loan is 620, but the program has special underwriting guidelines for borrowers without a credit score due to a lack of credit history. Down payments can be as low as 3 percent.
In these cases, the underwriter will look at “non-traditional credit sources.” These include rental payments made to a landlord or management company, utilities, medical insurance coverage, auto or renter’s insurance payments, cellphone payments, life insurance policies, medical bills, school tuition, child care, or personal loans obtained from an individual. The underwriter will look at these payments over a 12-month period to determine whether the borrower pays on time.
HomeReady offers fixed- and adjustable-rate mortgages. Fixed-rate mortgages are available in 10-, 15-, 20-, and 30-year terms.
The borrower must meet income limits that vary by property location. There is no income limit for properties in low-income areas as determined by the U.S. Census. For other properties, the income eligibility limit is 100 percent of the area median income. Eligible borrowers are required to complete an education program to help them understand the home buying process and prepare for homeownership.
If the borrower puts less than 20 percent down, they will be required to pay mortgage insurance, but the mortgage insurance requirement can be removed once the loan-to-value ratio reaches 78 percent or less.
• SONYMA HOME LOAN
Minimum credit score: None
The State of New York Mortgage Agency (SONYMA) offers special programs to qualified first-time homebuyers who want to purchase property in-state. If you haven’t owned a primary residence during the past three years, you’re considered a first-time homebuyer.
The first-time buyer requirement is waived if you are a U.S. military veteran applying to purchase a home or you’re buying a home in a federally designated “target area” — an economically disadvantaged neighborhood where homeownership may provide a boost to the local quality of life.
Examining your credit reports closely is important because the reports may contain errors. You want to correct any erroneous, incomplete, or out-of-date information as quickly as possible. Reviewing your credit reports regularly also helps you spot identity theft early. Here’s the contact info for the big-three credit bureaus:
P.O. Box 740241, Atlanta, GA 30374
P.O. Box 2104, Allen, TX 75013-2104
2 Baldwin Place, P.O. Box 1000, Chester, PA 19022-1000
United Northern Mortgage Bankers, Limited has been trusted for over 39 years to help our customers with their home financing needs. We are happy, at your request, to run your credit report and provide you with a free credit analysis. This and other great benefits are available as part of credit month at UNITED NORTHERN MORTGAGE BANKERS LIMITED.