Whether or not you think the federal government is an evil empire, you might need Uncle Sam’s help to get a mortgage loan, especially if you have a poor credit history.
In the aftermath of the sub-prime mortgage meltdown, thousands of prospective homeowners are turning to the Federal Housing Administration (FHA) for help, as lenders who previously worked with people that had bad credit have closed their doors, been absorbed by other banks or pulled out of the mortgage lending industry altogether.
And FHA loans for bad credit still exist, fortunately.
Impact of Credit Score on FHA Loans
Even if you have a poor credit score, you should still apply for an FHA loan and see what happens. Most FHA loans can be secured by people with a credit score as low as 580. In cases such as this, the FHA requires up to 10% of the loan to be included in a down payment.
It’s good to know that credit scores are only part of the equation that the FHA uses in its formula for mortgage loans. The FHA considers down payment possibilities that the borrower can make, as well as his/her job history. If you have a good income and have been working at the same place for a year or more, your chances of securing an FHA loan go up considerably.
Limiting Factors for FHA Loan Appplications
There’s bad credit, and then there’s bad credit. If you have declared bankruptcy in recent days, you are going to need awhile to re-build your financial profile before you can get an FHA loan. You can apply for an FHA loan two years after the discharge date of your bankruptcy. If you have been on time with your credit payments since your bankruptcy, the FHA should be your first stop in your search for a mortgage loan.
If you’ve had a home foreclosed on you, then you need to wait two to three years to apply for an FHA loan. You might be asked to produce a letter stating why the foreclosure occurred, as part of the loan application process.
Unfortunately, if you have a federal lien, such as a tax lien or delinquency on federal student loans, you cannot get an FHA loan. You will need to get those debts taken care of before you apply.
If you have poor credit and want to buy a home, don’t despair. The FHA is helping people with bad credit every day to attain their dream of home ownership.