To obtain a home mortgage through conventional lenders, borrowers must have a fico score of 750 or higher. Additionally, borrowers must exhibit a strong history of repaying loans on time and a strong employment history. Fortunately, there are financing alternatives available for people with less than perfect credit.
A home mortgage option is known as seller’s conveyance financing. With this strategy, sellers act as lenders and personally finance all or part of the purchase price. Seller Transfer Mortgages typically range from two to five years; giving borrowers time to erase negative credit. Once the contract expires, borrowers refinance the loan through a traditional lender.
Another home mortgage financing option is rent-to-own real estate. Buyers reside in the home and pay rent to the property owner. A part of the rent money goes towards the purchase of the house. Most sellers of lease-to-own properties require a 10 to 20 percent down payment. Contracts last two to three years and help buyers establish a strong payment history.
Buyers involved in seller return or lease-to-own transactions should have contracts reviewed by a real estate attorney. Home mortgage contracts must include default clauses to protect both the seller and the buyer.
Buyers must make monthly payments via bank check. This will help expedite payment verification when borrowers are ready to obtain mortgage financing through a traditional lender. Paying with cash or money orders is strongly discouraged unless the seller provides notarized receipts.
A third option to obtain home mortgage financing is through private real estate investors or investment groups. This type of lending practice is known as hard money loans.
While hard money financing can help borrowers with bad credit buy a home, these loans don’t come cheap. Interest rates typically range from 15 to 20 percent. Down payment requirements range from 25 to 50 percent.
Hard money loans are intended for short-term financing. Terms typically range from one to three years. People who obtain home loans from private lenders should strive to refinance through a conventional lender as quickly as possible. Most banks will approve home loans once borrowers establish a consistent 12-14 month payment record.
The Department of Housing and Urban Development offers several homebuyer assistance programs. HUD loans are available to low-income homebuyers and people employed in certain fields, such as teachers, firefighters, and police officers.
The Federal Housing Administration makes loans to borrowers who meet the eligibility requirements. FHA loan applicants must provide proof of income, real estate appraisal, and source of down payment; e.g; monetary gift from family, inheritance or savings account. Loan limits vary by state and borrowers must work with an FHA-approved mortgage broker.
People who can’t get home loan financing should work to erase negative history and work to improve their FICO score. People should get a copy of credit reports from Trans Union, Equifax, and Experian.
The fastest way to improve credit scores is to reduce credit card debt. Strive to reduce balances to 20 percent of the credit limit. For example, if the limit is $5,000, the outstanding balance must not exceed $1,000.
Another important factor in improving credit scores is paying all bills on time each month. Credit scores can increase 100 to 300 points by reducing outstanding debt and consistently paying bills on time.
Higher fico scores equal lower home loan interest rates, which equals lower monthly payments. Your credit rating is one of your most valuable assets. Take all possible measures to protect it.
