Since 2006, the average FICO score has been on a steady decline – an alarming fact, but one which should not come as a surprise. Why? Simply put, this is just another ripple effect from the housing crisis. We were all impacted by the housing crisis in one way or another – though those of us working in real estate took a bigger hit than others. Considering that our nation still hasn’t fully recovered from the recent financial meltdown and general recession, while facing record unemployment rates and stagnant wages, it’s not surprising that many people are struggling to pay their bills, let alone buy a new house.
Fortunately, receiving a home loan with a low FICO score may be more attainable than you might think. Even those who score under 620 can still qualify for a loan, and here’s how:
- Prepare to pay more
People with poor credit can still get a mortgage, but they will pay far more than even those with credit scores on the margin.
Guidelines from the U.S. Department of Housing and Urban Development and the GSEs, Fannie Mae and Freddie Mac, advise waiting at least two years after a short sale, so long as credit after the short sale is good.
Sellers should be advised to do their homework on the mortgage brokers they are working with – shady and dodgy operators are like bottom feeders, looking to prey on those who are more desperate and who aren’t financially savvy, which is how they see people with poor credit.
- Refinance ASAP
A bad credit mortgage may seem like the borrower is signing away their life on a bad deal, but so long as the borrower maintains their credit after the mortgage is signed, they can be eligible to refinance for a much better deal within two years, and their credit will have improved.
- Ask about options
The 30-year mortgage is a popular choice, but maybe not the right one if the borrower’s credit is weak. Adjustable rate mortgages are also a possibility, depending on the circumstance, during which time the borrower can work on repairing and maintaining their credit while paying at a lower interest rate than are offered on fixed-rate mortgages.
- Get a co-signer
Many have some other assets, or have family members who are responsible. These people may be willing to co-sign. Federal Housing Administration rules allow for a co-signer on loans.
Do you think this is enough to help someone with the worst credit qualify for a loan? What are your thoughts?
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