As of 2015, the only mortgage lender that accepts applicants with bad credit is the Federal Housing Administration, according to USA Today. To qualify for an FHA loan, consumers must have no more than a 43 percent debt-to-income ratio, possibly undergo home ownership counseling, and pay higher interest and fees than those with good credit. Borrowers with poor credit are more likely to get an FHA loan if they can make a large down payment, states SFGate.Continue Reading
The FHA may make exceptions to the 43 percent debt-to-income ratio, which means that a consumer's overall debt including the proposed mortgage is 43 percent of his overall income, if an applicant can show compensating factors, states SFGate. These may include a large amount of savings, proof of substantial future earnings and a history of successfully handling housing payments over the past 12 to 24 months. The chances of approval increase if the consumer's proposed mortgage is not much more than recent regular verified rental payments, states Bankrate.
Although lenders handling FHA loans first subject applications to an automated system check, they sometimes consider compensating criteria in individual situations, according to Bankrate. For instance, they assess whether the applicant displays irresponsibility or has poor credit because of job loss, student loans or emergency medical bills. Lenders consider defaults on debts such as car loans more serious than these sometimes unavoidable factors.Learn more about Credit & Lending