Top mortgage sources if you have bad credit

Are you looking to buy a home, but your credit isn't as good as you'd like? Having bad credit is going to make getting a mortgage tough, but it doesn't have to mean you're out of options. 

Before you can get approved for a mortgage, you'll need a credit score of at least 640 and a history of positive credit. Also, your debt-to-income ration should be under 43% of your gross monthly income. This is where Angel Debt Solutions comes in. At Angel, we help people like you get your credit back on track. We can even help you with your finances, creating a debt management plan. If you have some past debts or creditors you owe money to, that's OK too. We'll get those settled for pennies on the dollar. The important thing is figuring out the best way to help each client in an honest and ethical manner. 

What if your credit isn't quite good enough to get a mortgage? There are two options to consider. 

FHA Loan

The Federal Housing Administration, or FHA, is part of the U.S. Department of Housing and Urban Development. The FHA helps home buyers purchase a home without meeting the stringent requirements of a conventional mortgage. Because many such buyers aren’t financially able to pay the sometimes high upfront costs of a mortgage, an FHA loan often comes with lower down payments –as low as 3.5%– lower closing costs and lower credit standards.

The FHA doesn’t make the loan, however. The agency partners with banks and insures part of the loan. If you were to default on the loan, the FHA will pay the guaranteed portion, allowing banks to take a risk on borrowers who may not otherwise qualify.

You may be able to qualify for an FHA loan with a credit score as low as 580, but lending banks still make the final decision and don’t have to approve applicants with a score that low. Most will require a 640.

Since the mortgage crisis that was blamed for sending America into a recession in 2008, lenders have tightened their standards considerably but don’t let that keep you from applying for a loan. At Angel, we're here to help you, the client. Not the banks. One of the advantages of doing business with us is that we can get you an attorney that will review your mortgage contract for free, and help you understand what you're signing. 

Rent-to-Own

Maybe your credit score is just too low to qualify for a loan, or a 3.5% down payment isn’t something you can afford. Homeowners who can't sell their home at the price they want might consider a Rent-to-own option.

Rent to own, also called lease to own, simply means that part of your monthly lease payment is going toward buying the home while the rest is a rent payment. This option may give you time to save for a down payment, rebuild your credit history, and try out the home before committing to purchase.Lease-to-own contracts often last two to five years and have an option to walk away from the home under certain terms.

You likely won’t find many homes with a lease-to-own option but if you work with a realtor, he or she can do much of the research for you. For more ways to locate one, contact one of our specialists today. 

The Bottom Line

Sometimes life events send your credit score plummeting. You didn’t plan for it to happen but you’re in the situation nonetheless. If that’s the case, you might have to rent until you can rebuild your financial picture.

If you can qualify for a loan, expect the interest rate and other terms to be less favorable than if your credit score were higher.

Before applying for a mortgage, spend some time with a debt specialist and get a game plan established. Clean up your credit and get your debt under control. Sometimes that can take anywhere from six months to a year but that path is one you're sure to stay on. 

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