Mortgage Loan Programs for Credit Challenged Buyers

Every time I turn on the television or listen to the radio I hear another media talking head share with the public that banks are not making mortgage loans for buyers with credit scores less than 680, 720 or 740. Well I want to first set the record straight that this is not entirely true.

Now Let me make myself clear that “YES WE CAN” get you a mortgage if your credit score is lower than 680. There are conditions, but it is possible and I do it everyday for a lot of my clients.

Now that I set the record straight, let me explain this a little further.

First of all, it depends on where you go to get the home mortgage. Some of the bigger commercial banks and other financial institutions only sell a certain selection of mortgage products. Most of these mortgage products are all credit driven loan programs and are called conventional loans. So if you go to one of these banks or financial institutions for your home loan they might give you the same answer that you have been hearing on the radio or television. For example, I have a client that just came to me for help with a home loan. She originally went to her credit union to get the loan before speaking with me. This credit union told her that she had to put at least 5% down and she needed a credit score of at least 680 to secure the loan. Since she did not meet this criteria the credit union informed her that they could not provide the loan. What she was not told was that there are many alternative mortgage loan programs for buyers who do not have to put 5% down or require a 680 credit score.

So what are the mortgage loan options if your credit score is below 680?

The best mortgage programs for buyers who are credit challenged are ones in which the loan program is not entirely based on credit. Most government backed loan programs fit under these criteria such as FHA, VA and USDA loans. These programs are what I call “Guideline” loan programs. Under these types of loans you can expect less amounts required for down payment and credit scores as low as 580. Now the catch is you must meet the loan programs “Guideline”. Most of these programs require at least 2 years solid employment in the same line of work with the ability to prove that you can afford the payment. Having money saved up in your bank or retirement accounts always strengthen the file. Credit is used and most of these programs look at specific patterns on your credit. For example if 6 years ago you had a bankruptcy and have started to re-establish your credit, and your new history has been clean for the last 1-2 years, you will probably get approved on your credit profile. These types of loans are all reviewed by a human underwriter and sometimes things from your past can be explained with letters of explanation. Basically your file is reviewed on a case by case basis based on the program guidelines that are set up for each one of these government loans.

If you have further questions and would like to discuss your situation further, please feel free to just drop me an email or just call me.