The Different Types of Mortgages for Low Income or Bad Credit
A bad credit score makes it difficult for people who want to own a home to avail of financing. A low income is additional burden since most lenders will use it as basis to see if you can keep up with the monthly mortgage payment. Getting a home though is not impossible anymore with the help of private lenders or government loans.
The financial market has changed a lot during the subprime market crash in the United States. Guidelines are stricter and so are laws which aim to protect everyone from bad loans.
There are different types of mortgages for low income or bad credit individuals that are available from a lot of lenders today. These loans though require borrowers to have certain level of monthly income and a guaranteed continuous source of fund.
Below are some of the mortgage loans available for people with bad credit or
Mortgage Loan Options with the Government
The government offers financial help in two basic forms of mortgage loans. These are the Federal Housing Loan or FHA and the Veteran Administration Loan or VA.
- FHA – the main thrust of this government agency is to aid people who are in the low income bracket who want to own a home. The loans can be used to purchase a single family home or a mullti-family residence. These types of mortgages for low income or bad credit individuals require at least a 3% down payment for the home that you want to purchase. The interest rates are typically lower than the prevailing market rates. FHA loans save the borrower a lot of money in the long run.
- VA Loan- The concept of this loan is similar to the FHA loan but is only made available to veterans. The agency will be requiring a veteran eligibility certificate before granting the loan to a borrower. The rates are also lower than the market rates and the borrower doesn’t need to make a down payment for the home purchase.
Private Loans for Low Income or Bad Credit
The types of mortgages for low income or bad credit offered by the government have undeniably lower interest rates. These loans though are limited and not everyone can qualify for an FHA or a VA loan.
If you are not approved for government loans, private lenders may offer you loan programs that may fit your needs.
The types of mortgages for low income or bad credit offered by private lenders charge slightly higher interest rates. It is usually 1 to 2% higher than the prevailing market rates. Some lenders though offer teaser rates which will make the purchase more affordable. This can serve as a good start while you are fixing your credit rating.
Other private lenders may offer 10% more of the purchase price. You can use the extra cash to pay off some bills or debt that you might have been delinquent with.
When applying for government loans or private mortgage lenders, make sure that you declare everything honestly in your application form. A short explanation why you are currently in a bad credit standing may also be helpful.
The types of mortgages for low income or bad credit are designed to give individuals a chance to own a home and get back up from unwise financial decisions or from inevitable situations in the past that might have affected your credit score.