You may not believe it but even in this slow economy there are FHA home loans for poor credit. Today we’re going to show you some of the ways you can still make your homeowning dream come true, even with your poor credit problems. We’ll discuss things like Percentage Rates, Eligible Properties, and Grant/Gift Programs. By the time you’re finished reading this article you should be armed with the proper information needed to get your home loan in progress.
Your annual percentage rate on your mortgage should be a key factor in deciding which of the FHA home loans for poor credit is right for you. Not all loans, even those from the FHA, have the new homeowner’s best interest in mind. There are two types of percentage rates to look for, fixed or adjustable.
Fixed rate mortgages are just that, fixed. You lock in the rate now and it stays the same over the life of your loan. These are usually higher rates than adjustable, but they offer less risk. Sometimes having poor credit will limit your access to fixed rate loans, but they are still out there. You just need to know where to look. The fixed rate loans range from 15 to 40 years to pay off, with 30 being the norm. Often times, those with poor credit will opt for the 40 year loan if they can get it because the monthly payments will be significantly reduced. However, this will also mean you’re paying an extra ten years of interest on the loan. The best rate will naturally be on a 15 year mortgage, but those are very difficult to get with bad credit.
Adjustable rate mortgages start out with very low introductory rates. This is great to get someone with bad credit in the door. But you must read the fine print. Even though you can find adjustable FHA home loans for poor credit, they may not be the best financial decision. If you plan on staying in your home for more than 10 years, you may get hit with a rate hike you just can’t afford. There is one good thing about getting your adjustable rate mortgage through the FHA and that’s the fact that their rates don’t increase as quickly as conventional mortgages. On average, a private mortgage will adjust 2% a year, where the FHA loan will only adjust 1%. This is a dramatic savings when you consider the average home price for people with bad credit is still $200,000.
Since you’re in the market for FHA home loans for poor credit, then you are probably looking for the cheapest house you can find. However, you have to make sure it passes the strict guidelines set forth by the FHA. There are some do’s and don’ts when it comes to picking your FHA eligible home.
Contrary to popular belief, some manufactured homes will still qualify for an FHA home loan. The home must have a size of more than 400 and be built after 1976 to be sure it conforms to the Manufactured Home Construction and Safety Standards. An inspection will be necessary to prove this qualification. It must also be permanently affixed to the earth via a chassis and all the wheels must be removed. The mortgage you apply for must cover the home and the build site.
There are some properties that are not eligible for FHA home loans for poor credit. Those include co-ops and duplexes mainly. Also tourist homes and public boarding houses are not eligible, and any property that would be rezoned as commercial. The FHA feels that these are income producing properties and therefore don’t qualify for a home loan.
Many FHA home loans for poor credit offer gifts and other incentives to help their borrowers make closing. These include such things as sellers paying closing costs. While private mortgage companies generally only allow the seller to put up 3% of closing, the FHA doubles this allowance to 6%. This often means the difference between a low credit buyer getting into their dream home or not. Sometimes there’s even enough left over at closing to use that seller’s contribution toward your interest rate points. This would mean less of a monthly payment than you anticipated and budgeted for in the first place.
There are also many disaster relief programs associated with FHA home loans for poor credit. These loans offer 100% mortgages instead of the traditional 80%. This means you can usually walk away with little to no closing cost and be back in your own home in no time. Also, these loans only look at your credit history prior to the natural disaster. Therefore, any credit problems you’ve found yourself in since then will not be held against you. This will help get you back on your feet quickly, and then you can work on those recent credit issues.
The FHA home loans for poor credit also allow gift funds and grants to be brought to the closing table. Many faith based organizations will have programs offered to members of their congregation. Otherwise, check with your local chapter of Metropolitan Ministries and other community outreach programs to see if they offer any assistance. Also, if you’re receiving any form of public assistance, you can check with your case manager. They will have access to many community organizations and classes you can take to receive this aid. Normally, after completing a few classes and credit repair steps, you can receive up to $10,000 toward closing.
Now that you’ve learned so many new things about FHA home loans for poor credit it’s time to get out there and start financing. Keep in mind that you have to watch out for that adjustable rate, make sure the property is eligible, and look for some grants or gift funds. Once you have all this in place, be sure to choose a home that best fits your family and your wallet. Chances are your grandkids will be coming to visit in a few years.