It is frustrating when something major goes awry with your credit. You may think that you are going to be in a situation where you will never be financially qualified to buy a house, but that simply is not the truth.
Today, there are more lending tools than ever that a mortgage lender can use on households with poor credit histories. This includes home loans designed especially for borrowers with low credit scores. You want to know your options. We have vetted mortgage lenders who rank among the best providers to potential homeowners with bad credit.
Best Overall Mortgage Lender for Bad Credit
New American Funding
New American Funding offers all three government loan programs: FHA, VA, and USDA. These programs offer access to low down payments and relaxed credit qualifying standards.
As a borrower with New American Funding, an FHA loan is available if your credit score is as low as 500, provided you have savings to make a down payment of up to 10%. If you can only put 3.5% down, for example, your minimum credit score is likely going to be 580 or better.
Pennymac
If mortgage rates fall, you could get a discount of up to $2,000 off your closing costs or toward your principal if you refinance a Pennymac loan within three years.
Homeowners with existing FHA loans can use a Streamline Refinance, which requires no appraisal, has low-cost and even fee-free options, and requires less paperwork.
While Pennymac offers FHA mortgage loans for those with a 580 FICO score, as the program allows, advertised mortgage rates on the Pennymac website require a credit score of 680. That could set potential borrowers up for disappointment.
Guild Mortgage
Borrowers without a credit score may qualify under Guild’s Complete Rate program by proving payment history through rent, utilities, and other common expenses.
Guild Mortgage works with down payment assistance programs nationwide and offers its down payment grants of up to $5,000 to qualified borrowers.
Eligible first-time home buyers can receive a $2,000 gift card to The Home Depot and $1,000 to $2,500 for closing costs with a 3% down mortgage.
AmeriHome
For home loan applicants without traditional credit scores, AmeriHome accepts alternative credit verification in the form of non-qualified mortgages. For example, you may get a mortgage by showing your bank statements or your assets. Such relaxed credit requirements are especially worth their weight in gold to self-employed borrowers.
Mortgage buydowns can lower your interest rate by as much as 3%.
Movement Mortgage
The Movement Boost program can assist eligible FHA loan borrowers who are low on cash with the full 3.5% down payment. An additional 1.5% may be applied to closing costs.
Movement Mortgage has an active social agenda that supports public charter schools and a foundation that builds infrastructure in under-resourced communities. As an Impact Lender, it gives between 40% and 50% of its profits to local communities.
Fairway Independent Mortgage
Fairway’s Community Access program offers first-time home buyer grants of up to $7,000 for borrowers in eligible metro locations.
USDA loans offer no down payments and have relaxed credit scores for rural and suburban buyers. They can be particularly good for low-to-moderate-income households.
Fairway works with 91 state housing programs nationally.
How to Get for the Best Bad Credit Home Lenders
The best mortgage bad credit home lenders will:
- Deal directly with the state’s housing assistance programs.
- Provide gifts for down payment and closing costs.
- Spend time explaining the terms of the mortgage and how the loan process will work.
- Assist in preparing a loan application for you.
- Give alternative credit qualifications, including rental and utility payment history.
- Explain the time it takes to get the loan approved and when the loan will actually close.
- Provide all types of government home loans and explain the pros and cons of each.
- Understand and encourage you to shop multiple lenders.
Which is the best home loan for bad credit?
For most Americans with modest means, the best loan program is a mortgage insured by the FHA. With easier credit hurdles and built-in low down payments, FHA loans have helped millions of borrowers with credit issues buy a home. You only need a 580 credit score with a 3.5% down payment or a 500 score with 10% down.
Conclusion
Few people take it easy in their attempt to get a mortgage, good credit or bad. Papers- or pixels representing papers- fly back and forth. You must prove how much money you make and document just about everything.
If you have bad credit, it may seem practically impossible to reach the finish line, which is called closing on a house.
Above all, talk to more than one lender. You might be surprised how different they can be. Talk to three or four lenders and apply for a mortgage pre-approval. If this preliminary application is accepted, you will get a Loan Estimate, showing the loan terms and interest rate for which you qualify. This isn’t final approval.
All the fees need to be carefully examined, including any that can be negotiated. Understand the total amount of money that your monthly payment will be, including taxes and insurance. Understand the questions and answers at every stage of the loan process.