Buying a Home with a Low Credit Score
Got a credit score below 650 and don’t think you can get approved for a home loan? Think again. It is most certainly possible even with a lower score!
Your credit rating will dictate whether or not you will be able to purchase that new home you’re considering. It will also determine the interest rate you will pay if you are approved. Due to the collapse of the mainstream subprime market, credit scores must be even higher in order to be considered for a mortgage.
Video: Bad Credit Mortgage
There are different scores for different mortgage loans. Although, the benchmark changes with the time of day, the following mortgage loans may be approved with the respective scores and applicable down payment:
- Conventional Loans – with 10% down and a credit score beginning at 680; although, most will require 700 or above.
- FHA Loan – no money down with a credit score of 620 or above.
- VA/United States Department of Agriculture (USDA) – no money down and a credit score of 620 or above.
Subprime and High Risk Lenders
The role of the subprime and high risk lenders is to lend to those who cannot be approved for a traditional loan. They lend to those who have a low credit rating, a limited credit history or unpredictable income like a small business. These lenders cater more to high risk borrowers who are willing to pay a higher interest rate and higher closing fees.
If you have a credit score of lower than 620, subprime and high risk lenders may consider you for a mortgage loan. One thing for sure; you will certainly be charged a higher interest rate in order to offset the risk for the subprime or high-risk lender.
Below are examples of subprime loan packages:
- Interest Only – typically will be an Adjustable Rate Mortgage (ARM) whereby borrowers pay only the interest for a specified period of time – usually five to ten years.
- Pay Option ARM– the borrower chooses the monthly payment – interest-only, full payment or a minimum payment that may be less than the amount required to lower the principle of the loan.
- Hybrid Mortgage – initial fixed rate that converts to an ARM.
Video: Real Estate Tips - Shopping for Mortgage Loans
Should You Use a Mortgage Broker?
Before you go gently into that dark night to pursue a home loan with a bank, check out a mortgage broker. Mortgage brokers have access to more options than a bank, including diverse prime and subprime loans. They also typically have access to special programs that banks don’t.
Do your homework before you decide on a lender. Make sure you ask specific details about interest rates, closing costs and any additional fees. Access the mortgage calculator on the Federal Reserve website. It will show you how much you’ll pay for each different type of loan based on the amount you want to loan. Ask the lender to send you a schedule of all fees and agreed-upon interest rates in writing before you proceed with the loan.
There are a whole slew of mortgage lenders available on the Internet. For a reputable one, you may want to check with professional mortgage associations, like the National Association of Mortgage Brokers NAMB), the National Association of Mortgage Professional and the Mortgage Bankers Association (MBA). There are others located nationwide.
Below are several mortgage companies you may want to consider. There will be a quote process specified on each one of the company’s website for your convenience. Just submit the required information and follow the process on each website to request a quote.
Richard Wyman
First American Capital Real Estate Services, Inc.
Aliso Viejo, CA
Ph. 800-790-2374 Ext. 103
Albert Farah
Smart Rate Direct
Anaheim, CA
Ph. 888-999-3737 Ext. 5202
Terrell Auth
Emigrant Mortgage Company
Finksburg, MD
Ph. 410-552-5093
Ruben Concepcion
Keys Financial Corporation
Key West, FL
Ph. 305-294-1484
Scott Guzik
Chicago Mortgage Funding LLC
Shorewood, IL
Ph. 815-741-7420
Edward Irwin
Integra Real Estate & Mortgage
Kirkland, WA
Ph. 206-275-4500
Paul Kueffer
Union Residential Funding
Phoenix, AZ
Ph. 602-439-5200
Terry Morrow
Great Eastern Investments, LLC
Bandera, TX
Ph. 830-796-7735