How to Buy a Home with Less-Than-Perfect Credit

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How to Buy a Home with Less-Than-Perfect Credit

Let’s face it, paying Rent is still Paying a Mortgage, just not your mortgage, but your Landlords mortgage.
It is crazy to me that more people are not aware of the thousands of local, private and governmental programs there are out there that are specifically designed to put renters into homes of their own. That is what I do; I put people who thought they would never own a home of there own, into their own home, and allot of the time it is way cheaper than the rent they are already paying.
I consider myself to be a modern day Robin Hood because I take Keys from LandLords and put them into the hands of Renters.
I work closely with Local Banks, the Government and State Departments and along with Local Investors, and my sole purpose is putting House Keys into Renters hands.

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Here is the truth, Buying a home doesn’t require having a healthy amount of cash on hand. But you do need a solid payment history over at least the past year or two, and a steady income. And you don’t need a perfect credit history either, although higher credit scores earn more favorable loan terms, it is still possible for someone with “low” or “average” credit to buy a home. Here is what we can do, and I’ll show you how.

We can get the government involved

With less-than-perfect credit, you should probably be looking for an FHA guaranteed loan. The Federal Housing Administration is a government agency that guarantees loans provided by authorized lenders. With the FHA backstopping your mortgage, you’ll gain a bit of flexibility when it comes to how much down payment you’ll need. We are talking about 0% – 3.5% down payments and there are agencies that will give you the down payment like the Washington State Fair Housing Commission (WSHFC) that will give people the 3.5-4% needed for these FHA loans. But such a concession comes at a cost.

By making less than the standard 20% down payment, you’ll be required to buy mortgage insurance — not to protect you, but the lender. It’s a pretty significant hit: 1.75% upfront. That’s $1,750 for every $100,000 you borrow, but this can be rolled into the loan and often payed by the Home owner who is selling their home. And you’ll likely have to pay ongoing monthly premiums at an annual rate of 0.45% to 0.8%, depending on the amount of your down payment and the length of your loan.

Let’s face it, Private Mortgage Insurance (PMI) is 0.8% of the loan. On a $100,000 home that is $80 a month. Now think of it like this, how long would it take you to save up $20,000 (20%) for a $100,000 loan, saving $80 a month? The answer is over 20 years. We are Americans, and saving for a home down payment is highly unlikely. So I like to tell my clients that PMI is essentially paying back the 20% Down Payment you didn’t put up front.

We’ll need to know your score

No doubt, as a potential homebuyer, it’s important to review your credit history. Knowing your credit score is an essential step, too. I have banks here in Bellingham who can get someone a home loan with as low as a 580 credit score. The optimal score, as far as the sheer number of programs out there is 620

FICO score graphic story See it is possible to still qualify with a credit score under 620, those borrowers represent a very thin sliver of total loans — less than 5%. While more than half of FHA loans (53%) in 2014 were made to consumers with scores between 620 and 679, with an average score of 680.

Still, the FHA particularly caters to first-time homebuyers, which represented more than 81% of loans backed by the agency last year.

Now let’s look at how much home can you buy?

Deciding how much home you can purchase is a matter of knowing what you can reasonably afford. And of course, your lender will determine the amount of the loan you will qualify for example, if you are paying $1,350 rent that would be a typical $250,000 mortgage depending on your mortgage interest rate that is, but this is typical. But with an FHA loan, there are other loan limits to be aware of; FHA loans require that your debt can not exceed over 45% of your Gross income. This is your debt to income ratio. But there are many factors they consider which makes it easier to qualify.

Maximum loan values that can qualify for FHA assistance vary by location and range from $271,050 to $625,500. The agency calculates local loan limits on the housing costs in your area. To find out the mortgage limit that applies where you are looking to buy, use this tool located at HUD.gov.

Let me guide you and help put you in your own home

While the FHA is the dominant lender for homebuyers rebuilding their credit scores or buying their first home, there are other federal and state programs that can also come into play. We will have to go over some basic questions to pre-qualify, for example: your current employment, job history and background. Then I will guide you to relevant government home loan assistance offered by the U.S. Department of Agriculture, Housing and Urban Development, Veterans Affairs and others.

You may be surprised how many programs are available to help lower the required down payment or provide a more favorable interest rate. In fact, there are well more than a dozen mortgage programs available for potential buyers facing many different circumstances.

Buying a home with bruised credit can be a stretch but can also be a part of a long-term strategy to rebuilding your creditworthiness.

Come visit me and I’ll educate you..!

Ronald Davis

Bellingham Local Real Estate

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by Hal M. Bundrick, CFP on July 20, 2015 | posted in Buying a Home, Mortgages

Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: