Good Job But Lousy Credit? Low Down Payment Mortgages Available

I receive calls regularly from people who have good jobs, steady income, but for one reason or another, their credit score is low. It may be due to a nasty divorce. Or maybe there was a previous job loss which caused late payments. Most lenders don't care why the score is low, it is what it is.

But there is still an option to get a mortgage without seeking private money sources. An FHA loan is a mortgage loan fully insured through the Federal Housing Administration (FHA) and issued by FHA-approved lenders. FHA insures lenders against losses that may result in the event of a borrower default. Advantages of an FHA loan are:

Low down payment.
Lower cost.
Easy credit qualifying.
Straightforward mortgage terms.

How Lending Tree Can Help You
Lending Tree is a free, no-obligation service that can connect you with multiple lenders who will compete for your business and provide customized loan offers. This includes matching you with lenders that offer FHA loans. Just submit a single loan request and Lending Tree will put you in touch with multiple competing lenders. Even if the Lending Tree system tells you that you may not qualify for a conventional loan, go to the FHA Loan section of their website and try that route.

Mortgages For Credit Scores 580 And Below
Let's focus on the easy credit qualifying part. At one time, credit scores were irrelevant but they've tightened up slightly since 2010. If your credit score is above 580 and you have good income and little other debt, you may qualify for a program with a minimal down payment of 3.5%. If your score is below 580 you may still get approved, but the down payment minimum jumps to 10%.

Special Consideration For First Time Homebuyers
FHA is more concerned with your monthly income and debts. FHA especially likes to help first time homebuyers. When adding up your monthly debts, do not include your monthly expenses such as cell phone and utility bills. Rather, debts include any loans like car loans and student loans as well as your credit card debt. An acceptable ratio of monthly debt payments to monthly gross income is something below 43%, but sometimes exceptions can be granted.

Example Of Calculating How Big A Loan
You Can Afford From Your Debt Ratio
If you had a car loan payment of 290 USD per month, a student loan payment of 100 USD per month and you pay 100 USD per month toward credit card debt, your total monthly debt is 490 USD.

If you gross 3,000 USD per month from work your debt ratio is 490 USD divided by 3,000 USD or 16.3%. Given that the maximum debt ratio for an FHA mortgage is 43%, you can estimate what you can afford in a mortgage payment (remember to include estimates for taxes and insurance).

In this example, 43% of 3,000 USD is 1,290 USD. Since you already owe 490 USD per month you have 800 USD left. Taxes and insurance on a small home will run at least 200 USD per month so that leaves 600 USD for principal and interest. At a 5.00% interest rate on a 30 year fixed loan, you could do a loan of 110,000 USD and have a principal and interest payment of 591 USD.