Buying a home is never easy as there are so many things to consider and decisions to make, especially for first time home buyers as they have to review their financial position. Houses are quite expensive and many not within easy reach of most homebuyers who have to rely on homebuyer assistance programs. Mortgage loans are an amazing tool to finance the purchase of a home, but they are based on one essential factor called credit scores. The lender only offers loan amount when it is sure the borrower would repay the amount in a given time.
The credit scores are categorized from 350 to 800 by FICO (Fair Isaac Corporation), and any score at 550 or below are considered bad credit. The banks do not offer home loans to a homebuyer with bad credit as there is a risk that he would default on the loan amount. The bad credit mortgage lenders Houston TX mostly consists of government-approved lenders who provide government assisted home loans with lenient terms to the potential homebuyers.
The two most popular government-backed loans are Federal Housing Administration (FHA) loans and Veteran Affairs (VA) loans. The FHA loans are ideal for the first-time homebuyer who have moderate income and need a home loan with low down payments, the VA loans, on the other hand, are given only to war veterans, their families and currently serving military men and women.
The bad credit mortgage lenders Houston TX offer FHA loans to homebuyers and ask them to make only 10% down payment, which is significantly less than that offered in conventional loans. The low down payment allows the person to keep enough money in his bank account to manage not only the monthly mortgage payments but also the household expenses. The VA loans offer the best terms and advantages of all the home loans as there is no minimum credit score requirement, and veterans do not need to pay any down payment or mortgage insurance.
The government guarantees the mortgage loans which reduces the risk and allows bad credit mortgage lenders Houston TX to offer loans to homebuyers, but there are some compensating factors required such as
- Showing real reasons that caused the bad credit
- Clearing all previous debt and having no outstanding dues or debt to pay
- Having stable employment for more than 4 to 5 years
- Having a high monthly salary; and
- Having low debt to income ratio