Bad credit fha loan
FHA Loans, also called as Federal Housing Administration loans, are the loans that are provided to people in United States by way of mortgage for buying a new home or an additional home. Thus, FHA loans are provided to first time buyers as well as existing home owners for buying additional homes. There are also FHA refinance loans that help homeowners in saving some money each month towards interest. One of the main reasons for people availing mortgage loans from FHA rather than other traditional lenders like banks etc is that FHA loans are offered at lower interest rates. Though people having good credit are welcomed to get a FHA loan, it does not mean that people suffering from bad credit cannot approach FHA for the loan. The main aim of these loans is to provide help to people that wish to buy homes, especially the first time home buyers. Bad credit is of course a blemish on the image of a person but it does not prevent him from taking a FHA loan. People suffering from bad credit are still eligible to apply for the FHA loan and enjoy the associated benefits like 100% financing, down payment of less than 3%, FHA regulated closing costs, and no fear of FICO scores. However there are some factors that are looked for while providing bad credit FHA loan. Let us discuss these next.
FACTORS AFFECTING BAD CREDIT FHA LOAN
When any person approaches any lender for getting FHA loan, his credit report is reviewed by the loan officer. If the credit report is bad, there are certain factors for which loan officer satisfies himself. First factor is loss of job. If a person is suffering from bad credit and has lost his job, repayments of FHA loan cannot be established by the loan officer and thus, a person may not be able to get the loan. If the person is having full time employment and his earnings are sufficient to cover the installment of FHA loan, there are good chances of his getting the loan at favorable terms. Second factor is Job transfer. If the person is likely to be transferred to some other place in future, his chances of FHA loan from a particular lender gets affected. It is advised here that a person should approach a lender for the FHA loan when chances of his job transfer are nil. Last important factor that is looked for while providing FHA loan is serious illness. If a person having bad credit is suffering from any type of serious illness, it may become difficult for a lender to provide the loan, as repayment of loan cannot be ensured.
There are many people that do not go for the bad credit FHA loans because of the fact that they are suffering from bankruptcies. It is important to note here that bankruptcy does not makes a person ineligible for FHA loans, though there are some criteria that have to be satisfied. In case of past bankruptcy, it must be older than 2 years so as to receive the aid by means of FHA loan. Even foreclosures do not make a person ineligible to get the loan, if it occurred at least 3 years before. So far different types of loan options provided under FHA loan are concerned, there are many. A person suffering from bad credit can get a 30 year fixed interest rate loan as well as ARM or Adjustable Rate Mortgage loan. It depends upon the requirement and future plans of a person. Whatever is the type of loan option chosen by a person, it is to be remembered that FHA is an equal opportunity lender and all types of loans are provided by way of fair lending practices.
OTHER ASPECTS
From the above discussion, it is quite clear that a person suffering from bad credit should not get discouraged and instead, should approach the loan office to find a FHA loan alternative for the bad credit. FHA is basically a division of HUD, The Department of Housing and Urban Development, and all the underwriting standards for the FHA loans are set by FHA. Since these guidelines are generally lenient, it makes it easy for the person suffering from bad credit to apply for the mortgage loan. The maximum amount provided under the bad credit FHA loan is limited to the FHA insured mortgage amount and a person would not find any lender generally that exceeds this limit. This is because in case of non-repayment by the person, the lender is able to get that much amount only from FHA that has been insured by way of mortgage. The loan amount also differs from one state to another. Thus, it is better if a person contacts any local HUD officer for getting required information.
Recently, FHA has come out with FHA Secure Refinance FHA loans. These loans aim to help those people that are suffering from sub-prime loans which have been adjusted for after June 05. Similarly, those persons that are facing foreclosures are also eligible to get the FHA Secure loan program.
When a person approaches lending institutions like banks, credit unions etc for getting home mortgage loans, his FICO scores are used for determining the amount of loan, interest rate and the repayment period. Even there are some lenders that qualify a person on the basis of FICO scores. But with FHA loan, a person suffering from bad credit need not worry as FHA loans are one of those mortgage loans that do not take into account the FICO credit scores. For all those people that have been discharged from the bankruptcy at least 2 years ago, there are FHA streamline refinance loans. However, it is required that a person has been able to keep a perfect credit score after discharging from bankruptcy.
Employment of a person plays important role in getting the bad credit FHA loan. At the time of applying for the loan, a person must be able to provide complete tax returns for the recent 2 years, W-2 and 1099 for the recent 2 years, pay stub for the recent month and 3 years tax returns as well as YTD Profit and Loss Statement if he a person is a self-employed.
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