Every man dreams of having his own house whether he has money or not. But buying a house is a big financial investment; as a result, the dream of many peoples is being shattered for investing a lot of money. Thus many are falling behind and many are dreaming of buying a house on loan. But still, you may be worried if your credit is bad and also, there are not enough savings for the down payment and you might think how much you need to save in order to get a mortgage. Lots of questions coming up, and wondering how to own a home?
If you are interested to buy a house with a loan, in addition, to deal with bad credit even if no money available for a down payment, your wish will be fulfilled, it is possible to buy a house with bad credit and without a down payment. Thanks to Government-sponsored loan, they are allowing people to buy a house with bad credit and without a down payment, although each loan has a set of requirements, in order to qualify for a low down payment mortgage, you need to meet the requirements.
You have to look at some options when you need poor credit home loans along with zero down mortgage. However, in this article we will discuss some loan options where you don’t have to deposit money and you can get a loan even with a bad or poor credit score, just read the article with a little attention.
No Money Down or Zero Down Mortgage And Bad Credit
A zero-down mortgage is a home loan where you don’t have to put down any payment for getting a loan. A down payment is the first payment you make for a home and it is calculated as a percentage based on the total borrowed amount. In order to purchase the house, no down payment is required for first time home buyers or repeated home buyers in case of, no down or zero-down mortgage.
On the other hand,
If you have a failed credit history that means maybe you didn’t pay the bill properly or owe too much, in that case, you are considered a bad credit holder means you have a lower credit score. 580 or below score is considered as a bad or poor credit under a scale of 300 to 850. It is tough to get a loan or credit card with bad credit.
How To Buy a House With No Money Down And Bad Credit
If you want to purchase a house with bad credit and without a down payment, you are in luck, you will get Government-backed loan that is insured by the federal government. The loans are offered for those who need financial assistance to buy a home. Government-backed loans are less risky for both borrowers and lenders. However, currently, there are two mortgage programs available that allow people to buy homes with no money down and bad credit. Take a look the mortgage programs are;
1. VA loans
The no down payment loan options are available for veterans & surviving spouses, active duty service members, and National Guard’s members. You will get 100% financing, hence you don’t require money down for getting a loan. The cheapest mortgage program does not require mortgage insurance, so borrowers can save lots of dollars in a year. You can pay a time VA funding fee that is 2.15% of your loan amount.
With VA loans you can finance a home with bad credit means you still have the facility to buy a house with bad credit by getting VA loan. There is no mandatory credit score needed for getting VA loans. Credit score depends on the lender; different lenders have different credit score requirements. Most lenders charged 580 to 620 credit score, whereas some lenders allow people with poor credit in some cases.
Service requirements of a VA loan
To qualify for a VA loan, you need to meet any of the following service requirements:
- During the war, 90 consecutive days of service were served.
- Active service has been served for 181 consecutive days in peacetime.
- Has served in the National Guard or Reserve for over 6 years.
- Be the wife of a service member who dies in the line of duty.
- Provide 100% financing.
- Poor credit does not disqualify you immediately.
- Does not require mortgage insurance for VA loan.
- No down payment is required.
- The required credit score is 580 to 620.
- Need service requirements for VA loans.
- The funding fee will be higher in case of reuse.
- Seller does not love VA loans.
2. FHA Loans
FHA loan is designed for people who have low to moderate-income. FHA loans are very popular among first time home buyer as it has very flexible requirements to qualify for a loan than other loans types. You can get FHA loans with bad credit and low down payment. Generally, an FHA loan has two loan requirements that are;
- If you have a credit score at least 500, you may qualify for an FHA loan but you are charged for a 10% down payment.
- If your credit score is 580, you need only a 3.5% down payment.
You can also get an FHA loan without a down payment. FHA loan allows using gift funds for down payments to put it zero down. You can collect funds from your friends, relatives, or other reliable sources. So you can buy a house with bad credit and without down payment by getting FHA loans. FHA loan has different mortgage terms, and among them, 30 and 15 years fixed rate mortgage are very popular.
- Low down payment.
- Minimum interest rates.
- Gift funds can be used for no down payment.
- Credit score as low as 500.
- A high debt-to-income ratio has been adopted.
- Flexible loan requirements.
- The purchase price cannot exceed the limit of the indebted loan.
- Mortgage insurance is expensive.
Alternative loan options for buying a house (Zero down & FICO score 640)
3. USDA Loans
The United States Department of Agriculture designed the program to encourage rural and suburban areas development. If you wish to buy a home in rural or suburban areas, you may consider for USDA loans. If you are eligible then you can get USDA loan with zero down payments and with lower fees than other loans. Both you and your family have to qualify for a USDA loan. Just have a look he requirements;
- In order to qualify for a USDA loan, your home should be in rural or suburban areas (USDA MAP of eligible areas-check if you are qualified and any place outside the orange area on this map qualifies as a rural area).
- The combined gross income of the household can’t be exceeding 115% of the median income of your home area.
- Your debt-to-income ratio must be lower than 45%.
- Your minimum credit score should be at least 640.
- No down payment is required.
- 100 percent financing mortgage.
- Lower credit score.
- There is no pre-payment penalty.
- Home repairs and improvement.
- Seller may pay closing costs.
- The fixed interest rate is lower.
- Geographic restrictions apply.
- Mortgage insurance included.
- Income limits to qualify for a loan.
- Not applicable for duplex homes.
Tips to help increase your credit score
You can boost your credit score by following these tips.
- Pay any type of bill on time.
- Reduce the amount of money that you keep into your credit card each month.
- Pay off your arrears.
- If need applies for a small personal loan and pays the loan back on time.
- Apply for a secured credit card
- Try to clean errors from your credit report.
- Try to give enough time to your accounts to become older for impressing lenders.
Frequently Asked Questions
Can I buy a house with bad credit?
Yes, you are in luck, you can buy a home with bad credit. If you have a minimum credit score at least 500, you are considered for the FHA loan. Remember, to get an FHA loan with a 500 credit score, you need to pay a 10% down payment.
What credit score do I need to buy a house with no down payment?
In the case of VA loans, the minimum credit score requirement is 580(some VA lenders issue loan with below 580 scores in some cases) and 640 credit score is needed for USDA loan. Eligible candidates can get both VA and USDA loans with no down payment. You can also get an FHA loan with a 500 credit score and without a down payment (Using gift funds).
How can I get money for a down payment on a house?
You can get money for a down payment to buy a house by following these tips. Make savings, borrow from your parents, save the tax refund, keep eye on Government programs, and consider 100 percent financing options, etc.
How do I qualify for first time home buyers loan?
You can qualify yourself for first time home buyers loans with at least 580 credit score with as low as 3% lower down payment (FHA loan) or you will be also qualifying with 500 credit score but need to put 10% down payment.
What is the easiest mortgage to qualify for?
Federal Housing Administration (FHA loan) is one of the easiest mortgages to qualify for a home loan. They issue a mortgage to first-time homebuyers with flexible requirements.
Therefore, your dream will come true with the above-listed loans. But take note, that both USDA and VA loans have hard loan requirements. They will allow you with zero down payments but in case of USDA loan, both you and your home must meet the USDA home loan requirements to qualify for a home loan and a VA loan needs service requirements. I think an FHA loan will be convenient for you as they have flexible loan requirements and allow people with bad credit scores and with no down payment. Hence, you can buy a house with bad credit.