How do you get a mortgage with bad credit?


Quick Answer

Potential home buyers with bad credit can obtain FHA loans, which are mortgage loans through private lenders that are insured by the Federal Housing Administration. Individuals with poor credit may also benefit from the FHA's Back To Work program, which helps people with credit that has been damaged through no fault of their own to attain a home loan more quickly after a period of unemployment.

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Full Answer

The FHA requires borrowers have a minimum Fair Isaac Corporation credit score of 580 and a 3.5 percent down payment to qualify for an FHA-insured loan. However, most lenders require a minimum FICO score of between 620 and 640 to qualify for an FHA loan, in addition to the 3.5 percent down payment. Lenders also require documentation of the borrower's income and assets, and that the borrower meets a debt-to-income ratio of no more than 41 to 43 percent of monthly gross income. FHA loans have higher mortgage insurance requirements than conventional loans.

The FHA's Back To Work program was created in response to the severe economic and real-estate downturn of the late 2000s. FICO scores are determined using a combination of factors, including the frequency of late payments, the percentage of revolving credit lines in use and the number of accounts in collection status.

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