I specialize in bad credit Houston mortgage loans. Just about anyone with a job or income can qualify for a home loan. The problem with bad credit is that the loan terms can be more restrictive and less favorable than good credit loans.
Credit score and mortgage or rent payment history are key factors in mortgage loan approval and terms. There are three main credit bureaus. They turn your information into a numeric score and the middle of your 3 scores is generally used. Your rent or mortgage payment history may also be considered, especially the most recent year. Only rent or mortgage payments that are 30 or more days late count against you. Lenders will also look at your income to see if it is adequate to cover the loan payment plus any other obligations.
With a credit score lower than 490 you will probably need a down payment of 30% or more. It could be possible to work with less if the seller will carry a second mortgage (for example 10%), and the primary lender agrees. You may also be able to find an assumable loan or seller financing but this is not common. Below 490 you will probably pay the highest interest rate allowed by law, or close to it.
If your credit score is from 490 to 520, around 20% is usually required down. Most loans in this range are adjustable rate loans (ARM). The rate is often fixed for the first 2 or 3 years and then will adjust according to an index plus a margin. Because the rate will be high, a good strategy is to boost your credit score during the first 2 years and then refinance into a lower rate loan.
A credit score of around 540 is usually enough to qualify for 90% financing. Lenders will often allow the seller to contribute 5% or 6% to your closing costs, which can help reduce the cash needed. 100% financing (zero down payment), is often possible with a score of about 580. A score in the mid 600â€™s or better will usually qualify for an excellent finance rate.
If your current credit score and cash available are not workable to buy a home you can make a plan for improvement. It is very important to stay current on your rent payments. A good mortgage broker can give you tips on things you can do to improve your credit score. Anyone in Texas is welcome to call me at my Houston office for more information, 281-537-7800.
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