Many first-time homebuyers (FTHB) with bad credit think they don’t have any available loan options.
Nowadays, a good credit score and a 20% down payment are no required to buy a home, if you have bad credit.
This section will discuss the options that are available
Mortgage programs for First-time Homebuyers with Bad Credit
Find an Alliance lender that specializes in FTHB & Bad credit
Many first-time homebuyers with bad credit typically have a hard time finding a lender to work with them due to their financial circumstances. The Lenders Alliance was formed to fill this void and offer help to all people regardless of their credit situation. The Alliance lenders want to hear your story and offer whatever help they can based on your situation.
FHA loans – The perfect home loan for first-time homebuyers
FHA loans are perfect for first-time home buyers with bad credit because an FHA loan is more flexible that other home loan programs. FHA will accept lower credit scores & lower down payments.
2020 FHA Mortgage Snapshot
- 580 or higher FICO score for 3.5% down. Below 580 requires 10% down.
- 100% of down payment can be a gift.
- Must have two years total work history. Advanced schooling counts toward this history
- Must have verifiable income via pay stubs or tax returns
There is not a firm credit score requirement, however most lenders require a 620 score.
To qualify for a USDA 100% loan, you must meet the following:
- You must meet the USDA income requirements
- Must occupy the dwelling as your primary residence
- Purchase a property that is in USDA eligible area
- You must be a U.S. Citizen, U.S. non-citizen national or Qualified Alien
- Must be eligible for federal programs
- The total monthly payment ratio (PITI) principal, interest, taxes, home owners insurance, and USDA annual fee. Must meet the USDA required front end ratio of 29% . The total debt ratio (back end ratio) must be 41% or lower. However, if you have a credit score above 680, then you can request a debt ratio waiver from the USDA.
- Must have or had two accounts with a 12 month pay history
VA Loans for Veterans with bad credit
VA home loans offer incredible benefit for a FTHB Veteran. If you’re a Vet and are interested in a mortgage, you should read our section VA section on how VA loans work and their benefits.
VA loans are great for FTHB Vets because the VA offers 100% financing without monthly mortgage insurance. VA loans also have more flexible credit score requirements
Where/ How Do I Get The Process Started?
The first step is to reach out to an Alliance lender. They will be happy to discuss your financing options and how to get started.