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How To Get A Mortgage With Bad Credit – Forbes Advisor

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Can you get a mortgage if you have bad credit? With certain loan programs and lenders, it may be possible—especially if you can make a big down payment, prove large cash reserves and have a low debt-to-income ratio.

About 15% of American consumers have credit scores in the 500 to 599 range on an 850-point scale, which is considered poor to fair credit, according to FICO. Another 10% are in the 600 to 649 range, which is considered fair credit. You’re in good company if your score is less than ideal, and the right lender can help you get a mortgage or explain how to get approved in the future.

What Is a Bad Credit Score for a Mortgage?

A bad credit score for a mortgage is one that doesn’t allow you to get a loan, only lets you get a more expensive loan or requires a larger down payment in order to qualify for a loan. What’s considered “bad” depends on the type of loan you’re applying for: conventional, FHA, VA or USDA. Most successful homebuyers—about 93%—have credit scores of 650 or higher, according to Ellie Mae, a technology solutions provider for mortgage lenders.

A steady income, a small amount of debt compared to your income and a significant down payment can help you get a mortgage despite a bad credit score. But if your score is below 500, you’ll almost certainly be rejected. A recent foreclosure or bankruptcy can also really hurt your score and keep you from getting a loan for at least one year—and possibly several years.

What Is the Minimum Credit Score to Get a Mortgage?

The minimum credit score to get a mortgage depends on which type of mortgage you’re applying for. It also depends on which lender you’re working with. Some lenders are more willing to work with low-credit-score borrowers than others.

Conventional Mortgage Credit Score Requirements

Conventional mortgages have the strictest credit score requirements, but they’re still more lenient than you might think.

Freddie Mac and Fannie Mae, the two huge companies that help make conventional mortgages widely available, have strict credit  score requirements for borrowers making the minimum down payment of 3%: Freddie Mac’s minimum credit score is 660 and Fannie Mae’s is 620. Freddie will allow a credit score as low as 620, too, but only with a down payment of at least 25%.

Most lenders follow these rules because after they close your loan, they sell it to one of these companies. The table below shows how few borrowers get conventional loans with credit scores below 700.

Sometimes lenders grant exceptions if a borrower’s credit score is below the minimum because the borrower doesn’t have enough credit history. However, that’s different from having a bad credit history. It’s only an option if the items that do appear in that limited history aren’t derogatory and if the borrower can prove their creditworthiness with verifiable payments that don’t appear on traditional credit reports, such as rent or utilities.

Conventional borrowers who barely make the credit score cut-off will usually need a debt-to-income ratio no higher than 36% and must be buying the home as their primary residence. Lenders may also require at least two months of cash reserves.

FHA Loan Credit Score Requirements

You can get an FHA loan with a credit score as low as 500. However, if your score is 500 to 579, be prepared to put 10% down. With a score of at least 580, you can put down just 3.5%. FHA loans have the second-loosest credit score requirements after VA loans and are quicker than conventional loans to offer borrowers a second chance after a bankruptcy or foreclosure.

Still, you might find that some FHA lenders will not work with you unless your score is at least 620. They’re allowed to have their own, stricter requirements. As a result, you may have to put more work into loan shopping if your score is below 620. Most FHA borrowers have credit scores in the 650 to 699 range, as the table below shows.

VA Loan Credit Score Requirements

VA loans have the most generous credit score requirements: there’s no minimum credit score. No other mortgage offers this benefit, but these loans are only open to eligible military service members, veterans and surviving spouses.

Like FHA loans, they’re more forgiving of negative credit events, but again, lenders can set their own minimums and might require a higher score. The average homebuyer who closed on a VA loan within the last year and a half had a credit score in the low 700s.

USDA Loan Credit Score Requirements

USDA loans have different credit score requirements depending on the program and the lender. Section 502 Guaranteed Loans, for example, don’t have a minimum credit score requirement. USDA mortgages are available to low- to moderate-income borrowers who want to buy a home in an area with a population of less than 35,000.

Low Credit Score Costs

On a 30-year fixed-rate mortgage for $150,000, having a credit score of 620 to 639 could cost you tens of thousands of dollars more over 30 years compared to having a credit score of 760 or higher. Check out the table below to see how much more you’d pay.

Still, 4.5% is, historically speaking, a great interest rate. There’s hardly been a more affordable time to get a mortgage if you have bad credit.

Improving Your Credit Score Vs. Getting a Mortgage Now

You could spend several months or more improving your credit. But what will happen to interest rates during that time?

  • If they go up, you may not save any money despite your improved credit.
  • If they go down, you could save money from both your improved credit and the market’s lower rates.

No one knows where interest rates are headed. The country’s most educated guess comes from the Federal Reserve, so that’s a good source to consult.

In the press release section of the Federal Reserve website, look for the most recent economic projections from the Federal Open Market Committee (FOMC). Do they think the federal funds rate is headed up or down?

If they think it’s headed up, mortgage rates could be headed up. Right now, they expect the federal funds rate to stay around zero through 2021 and possibly 2022. But that’s a prediction, not a guarantee.

5 Tips for Getting a Mortgage with Bad Credit

  1. Know your options. If you can’t qualify for a conventional mortgage, what about a VA, USDA or FHA loan?
  2. Don’t give up easily. You may hear a lot of no’s from lenders before you hear a yes.
  3. Try a mortgage broker. They may know which lenders are the best match for your circumstances. (Lenders pay brokers; their services are free to borrowers.)
  4. Spend a few months improving your credit before applying for a mortgage. Paying down high-balance credit cards, making on-time payments and disputing credit report errors can help your score considerably.
  5. Save up a down payment of at least 10%. Lenders will see you as less risky when you have more skin in the game.

When You Should Ask for a Rapid Rescore

You should ask for a Rapid Rescore when you’ve taken actions that will boost your credit score, such as paying off a judgment or an account in collections, but your score won’t reflect those changes fast enough to benefit your mortgage application.

Rapid Rescore can update your score, well, rapidly—not after the 30 days or more it could take through the usual process. Your lender can request a Rapid Rescore on your behalf, but you can’t request it on your own.

When You Should Rent Vs. Buy

Your credit score can offer insight into whether you should rent or buy. Lenders use your credit score as a crystal ball to predict how likely you are to repay a mortgage. But they don’t actually know you. What do you think about your credit score? Does it say more about the type of borrower you are today or the type of borrower you were in the past?

If you have a bad score because you didn’t understand how to manage credit, but you’ve learned since then; because you went through a rough patch, but you’re fine now; or because a divorce or identity theft trashed your credit, you might be comfortable buying a home now if you can get a loan despite your credit score.

If you have a bad credit score because you’re not good at making payments on time or you tend to overspend, renting while you improve your habits is probably the wiser option.

Bottom Line

Some people aren’t going to qualify for a mortgage, period. And some people won’t have the mitigating factors they need—like 10% down—to qualify despite having bad credit.

But having bad credit doesn’t have to stand between you and your desire to own a home. Credit history is only one piece of your overall financial picture. If you have the income and savings to afford a home, buying may be the right choice for you, even if you have to look harder for a lender or pay a higher interest rate.

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Bad Credit

3 mortgage refinancing options for those with bad credit

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Does a low score mean limited options? (iStock)

Record-low interest rates are dominating the news cycle and homeowners, in particular, are jumping to refinance. Data from the Mortgage Bankers Association puts current refinance activity at 98% higher this year than last year, even amid a global pandemic.

Those with low credit shouldn’t skip rate shopping either as there are still options available in today’s low-rate environment — even for those with the thinnest credit profiles.

Mortgage rates vary by lender. Many non-traditional lenders take other factors into consideration outside of credit score, like earning potential and steady work history. While some of these lenders do advertise their qualification criteria, many borrowers may not happen upon them unless they actively shop for refinance rates and offers.

These days, borrowers can quickly explore their mortgage refinance options by visiting Credible, which allows loan seekers to compare both rates and lenders in one place.

1. Look at FHA loans

FHA loans aren’t just for first-time buyers with small down payments. The benefit to doing an FHA refinance is that this option, backed by the Federal Housing Administration, does consider borrowers with sub-600 credit scores who hold less than 20% equity in the home. In fact, only those with less than 20% are eligible for an FHA refinance.

There’s even better news for those with existing FHA loans. With the newer FHA Streamline Refinance product, borrowers can refinance without an appraisal and with lower out-of-pocket costs, saving both time and money.

HOW TO REFINANCE YOUR MORTGAGE

2. Explore VA loans (if you qualify)

Veterans receive many benefits for their service to our country, and one of those is access to mortgage loans backed by the government via the Veterans Administration (VA). Not only are these loans offered at some of the lowest interest rates available, but they also benefit current and past service members regardless of their credit.

Those with current VA loans can also consider refinancing through the VA with the Interest Rate Reduction Refinance Loan program. The IRRRL program is similar to the FHA Streamline Refinance product in that it does not require hefty out-of-pocket closing costs or an appraisal.

If you’re interested in finding the lowest interest rates around, however, you should consider using a multi-lender marketplace like Credible. Credible allows you to compare rates and lenders to ensure you find the best deal.

HOW TO GET THE LOWEST MORTGAGE REFINANCE RATES

3. Opt for cash-out refinance

A cash-out refinance may make the most sense for those with low credit due to a large amount of high-interest debt. Leveraging a cash-out refinance turns home equity into a liquid asset, which borrowers can then use to pay off outstanding debts. Additionally, refinancing to a lower interest rate will save money on the repayment. With current credit card interest rates above 17%, and cash-out refinance rates at 3.194% APR for a 30-year fixed option, this refinance option makes financial sense for those battling to get out from under their debt.

You can visit Credible to get pre-qualified for such a loan and to shop around for loan options among different mortgage lenders. By providing some basic information, you can find out if approval for a loan is likely and can see what rate you’d pay so you can determine if a mortgage refinance loan is affordable.

IS NOW A GOOD TIME TO REFINANCE YOUR MORTGAGE?

What are today’s mortgage rates?

It’s important when shopping for a mortgage refinance to keep an eye on interest rate changes week to week as even a small increase adds up to thousands saved on interest. Again, Credible is a great place to shop. You can compare rates and complete the entire mortgage refinance application process online. Find your rate today.

HOW REFINANCING YOUR MORTGAGE CAN PUT MONEY BACK IN YOUR POCKET

As of the time of writing, (the week November 19th) the current interest rates are:

  • 30-year fixed-rate refinance average: 2.75%.

In the month prior (Week of October 19th), the average 30-year fixed-rate refinance was much higher at 3.16%.

To illustrate the difference, let’s look at the numbers. A consumer refinances a $300,000 loan at 3.2% in October pays over $167,000 in lifetime interest. Another consumer who waits a month and refinances $300,000 at a slightly lower rate of 2.8% percent will pay just $143,000 in interest over the life of the loan.

The bottom line

Don’t let a bad credit score keep you away from the significant savings to be had with today’s low interest rates. While lower credit may not qualify you for the best rates available, depending on when you refinanced and your credit score at the time, refinancing now could still be a big financial win.

To start, investigate refinance options by shopping with multiple lenders to see potential rates, and then input those figures into a mortgage refinance calculator to visualize savings.

Finding the best mortgage refinance rates takes time. You’ll need to compare rates from multiple lenders. Credible allows you to compare multiple lenders to ensure you meet your personal finance goals. Find out how much you could save on your loan amount by refinancing now.

HOW TO FIND THE BEST MORTGAGE RATES AND FASTEST CLOSINGS

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Can I Cancel My Full Coverage Car Insurance?

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While you’re financing a vehicle, you must maintain full coverage auto insurance – it’s not required by your state, but by your lender. If you don’t have a loan, you still need to meet your state’s minimum insurance requirements to legally drive your car on the road. Here’s what you need to know about full coverage insurance, and your choice in the matter.

Auto Loans and Full Coverage Car Insurance

Financing a vehicle means you borrow money from a lender, and then you pay them back in installments. Until you completely pay off the auto loan, the lender has ownership rights to the car. They’re listed on the vehicle’s title as a “lienholder,” and it gives them rights to repossess it if you stop paying or break the loan contract.

One of the requirements of an auto loan contract is that you have full coverage car insurance until you pay off the vehicle. Since the car is technically the lender’s, they can, and do, require that the vehicle is covered to the fullest extent.

If you cancel your full coverage auto insurance while you’re financing, you’re breaking terms of your loan contract. The insurance company generally contacts your lienholder right away and lets them know that the insurance coverage has lapsed.

Your lender can then put what’s called “force-placed” coverage, and add the cost of it to your monthly loan payment. It’s typically more expensive than if you were to choose the insurance for yourself, since the lender isn’t going to shop for the cheapest rates out there – you’re the one footing the bill – because they just want the car covered.

If you refuse to pay for the force-placed coverage, or you can’t afford it, then the lender hires a recovery company to repossess your vehicle. Your other option is to reinstate your previous full coverage that you canceled, or find another insurance plan that meets your lender’s requirements. Contact your lender to see what their insurance requirements are and what you need to do to remove force-placed coverage.

Types of Auto Insurance Coverage

If you’re not financing, then you can simply opt for personal liability and property damage (PLPD) coverage if you choose. This is usually the most basic level of insurance coverage offered by insurance companies, and it’s required to carry this coverage to drive your car on the road in nearly every state.

Can I Cancel My Full Coverage Auto Insurance?Full coverage is defined as a combination of comprehensive, collision, and liability insurance.

  • Comprehensive – Can cover damage from “perils” such as fire, theft, vandalism, or other single accidents not involving another driver, and carries a deductible.
  • Collision – Covers your vehicle in the event of an accident with another driver, regardless of who’s at fault, and carries a deductible.
  • Liability – Covers bodily injury and property damage if you’re in an accident and you’re at fault. This is the most basic level coverage that’s required in nearly every state.

The consequences of not carrying any sort of auto insurance on your car are usually hefty fines, and possibly other serious long-lasting repercussions. Not having auto insurance could lead to a misdemeanor or even a suspension of your license depending on your home state.

Check with your state’s minimum car insurance requirements so you can be sure that your insurance plan is up to snuff.

Car Insurance Too Expensive? Consider a Different Car!

The price of your auto insurance is also dependent on what vehicle you’re driving. Newer cars are usually more expensive to insure because they have more bells and whistles that are costly to insure and fix.

Used vehicles are typically less expensive, but it also depends on the make and model. Some cars are more desirable than others, which can make some vehicles a higher risk for theft. Your credit score can even be a factor in your auto insurance costs in many states.

If your car is too expensive to insure, then consider getting another vehicle. Sometimes, though, getting into an auto loan can be hard if your credit score isn’t the best. Instead of searching all over town for dealerships that can work with your credit, let us help at Auto Credit Express.

We’ve produced a nationwide network of dealers that are teamed up with bad credit car lenders, so let us look for a dealership for you in your local area. Fill out our free auto loan request form to begin the search for your next vehicle.

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Mark McCown: Eviction is different under land contract – The Tribune

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Dear Lawyer Mark: I have had my old house for sale with realtors for almost two years now, but it still hasn’t sold.

I had a few people look at it, and even make offers, but none of them can get a bank loan because of their bad credit.

I don’t want it to keep sitting empty, but sure as heck don’t want to rent it out and have someone tear it up.

One of the people who had bad credit asked me if I would sell it to him on a land contract.

I’m really thinking about doing it, but need to know what all needs to be in the land contract.

I also want to make sure that he is right when he told me that if he didn’t pay, I can just evict him like a rental agreement.

Is that correct? — WORRIED IN WINDSOR

Dear Worried: Chapter 5313 of the Ohio Revised Code governs land contracts.

Under its sections, the contracts must be executed in duplicate, and must contain at least 16 particular provisions.

Some of those are obvious, such as the sellers and buyer names and addresses (referred to as the vendors and vendees for a land contract), and some not so obvious, such as a “statement of any pending order of any public agency against the property.”

The land contract must also include the legal description of the property, sale price, interest rates, payments due dates, whether there are any other charges, as well as who is to pay for the property taxes, and whether there is a mortgage owed, among other items.

Even though it is not technically required, other provisions should go into the land contract as well, such as who is responsible for maintaining property insurance, and who the beneficiary of any insurance claims would be.

This can be extremely important, for example, if there were a fire that didn’t totally destroy the premises, but the buyer wants to stay.

Who gets the money from the insurance company — the seller for the purchase price, or the buyer for the damage to what will be his house?

Your prospective vendee is partially correct in stating that you can evict him like a rental.

If he is 30 days late on the payment, and the scenario below does not apply, you can evict him and cancel the land contract in a court case fairly quickly, if you follow the correct procedures.

If you do this, you cannot sue him for missed payments, unless he paid less than the fair rental value of the property.

However, under RC Section 5313.07, if a buyer has paid more than 20 percent of the purchase price or has paid on the contract for more than five years, the seller can only get possession of the land by bringing foreclosure proceedings.

This means you would have to bring a lawsuit against him, get a judgment in the lawsuit, and then have the property sold at a sheriff’s sale after advertising the sale, just as a bank would do in a foreclosure.

You can only recover up to the amount still owed to you on the property, with the excess proceeds from the sale going to the buyer.

Thought for the Week: “I have the simplest tastes. I am always satisfied with the best.” Oscar Wilde

It’s The Law is written by attorney Mark K. McCown in response to legal questions received by him. If you have a question, please forward it to Mark K. McCown, 311 Park Avenue, Ironton, Ohio 45638, or e-mail it to him at LawyerMark@yahoo.com. The right to condense and/or edit all questions is reserved.

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