If you have a poor credit history, it means that your credit score is less than 640. But if you are looking for a home loan, to a mortgage lender, a poor credit rating may mean any one of the following –
• You may have filed bankruptcy
• It is quite likely that you have several missed payments to your credit.
• It can be any financial obligation that you failed to meet
• You may have defaulted on your previous auto or home loan
Mortgage lenders usually categorize borrowers in 2 ways –
• Prime mortgage borrowers
If your credit score is 640 or more than that, you fall in the category of prime borrowers. You will be entitled to favorable or lower mortgage rates. You need to have a flow of income that is steady.
• Subprime mortgage borrowers
Borrowers falling in this category are those having credit score less than 640. The interest rates applicable for subprime borrowers are usually very high.
FHA (Federal Housing Authority) loans
If your credit score isn't good, you can also opt for FHA loan. These are the home loans the Federal Housing Authority guarantees. Since the FHA (an agency under HUD or Housing and Urban Development Agency) guarantees these home loans, they are favorite of the banks. This is because the banks know that if the borrowers default, they will not have to incur the loss as it is guaranteed by the federal government.
In case of FHA loans, you don't need to make a down payment that is 10% to 20% as required in case of a prime loan, but you can make a down payment that is as low as 3.5%. In a nut shell, if you have a poor credit history, you can avail the FHA loans. Availing FHA loans requires that if you filed bankruptcy prior to applying for FHA loan, bankruptcy should have been discharged 2 years prior to it. You must have had a good credit payment history for at least 2 years prior to applying for the FHA loan.
• You may have filed bankruptcy
• It is quite likely that you have several missed payments to your credit.
• It can be any financial obligation that you failed to meet
• You may have defaulted on your previous auto or home loan
Mortgage lenders usually categorize borrowers in 2 ways –
• Prime mortgage borrowers
If your credit score is 640 or more than that, you fall in the category of prime borrowers. You will be entitled to favorable or lower mortgage rates. You need to have a flow of income that is steady.
• Subprime mortgage borrowers
Borrowers falling in this category are those having credit score less than 640. The interest rates applicable for subprime borrowers are usually very high.
FHA (Federal Housing Authority) loans
If your credit score isn't good, you can also opt for FHA loan. These are the home loans the Federal Housing Authority guarantees. Since the FHA (an agency under HUD or Housing and Urban Development Agency) guarantees these home loans, they are favorite of the banks. This is because the banks know that if the borrowers default, they will not have to incur the loss as it is guaranteed by the federal government.
In case of FHA loans, you don't need to make a down payment that is 10% to 20% as required in case of a prime loan, but you can make a down payment that is as low as 3.5%. In a nut shell, if you have a poor credit history, you can avail the FHA loans. Availing FHA loans requires that if you filed bankruptcy prior to applying for FHA loan, bankruptcy should have been discharged 2 years prior to it. You must have had a good credit payment history for at least 2 years prior to applying for the FHA loan.
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