Insured by the Federal Housing Administration (FHA), FHA loan programs are designed to realize the dream of first-time home buyers. The private lenders will issue the loan program while the FHA will back it up. If you fail to repay the loan, the FHA will pay the lender instead. It is because of this guarantee, lenders are willing to make substantial mortgage loans in cases when they would otherwise not be ready to approve loan applications.
Though no credit requirement is mentioned by the FHA, lenders ask to fulfill a minimum requirement to get the loan program. So, if you have a low credit score, it might be difficult for you to get the approval. However, you can take some steps to get FHA government home loans bad credit in Texas. Here are these:
Arrange for a large down payment
When you come up with a larger down payment, the lender will be ready to approve your loan application in spite of your bad credit score. Nowadays, it is possible to get a home loan with down payments of 3 percent or lower than that. However, for those with bad credit, larger down payments can make the difference between an approval or a rejection. When you come with a large payment, it shows your lender that you are ready to take on more of the risk in a home loan. Moreover, when you invest more of your own money into the purchase from the very beginning, the lender will believe that you are less likely to walk away from the mortgage. When you come up with a down payment of 20 percent or more than that on your home purchase, you will increase your chance of getting the approval even when your credit is not sparking.
Be ready to pay a higher interest rate
You can still get a mortgage loan with a lower credit score if you are ready to pay higher interest rates. When a lender approves for a mortgage loan, he or she always wants to get back the amount on time. Borrowers with lower credit scores cause doubts in their minds, whether the home buyer is able to return the loan amount. And as a way to protect them, mortgage lenders charge higher rates from credit-challenged borrowers. Lenders know that borrowers with low credit scores have a history of paying bills late or missing payments altogether. A higher interest rate equals a higher mortgage payment. So, when you are ready to offer a higher interest rate, there is a huge possibility that your application for the loan program will be approved easily and promptly.
Ensure a good debt-to-income ratio
Some of the mortgage lenders also want to calculate the debt-to-income ratio of a potential borrower to decide whether he or she will be eligible for the loan program or not. You can easily calculate it: divide all your monthly debt payments by gross monthly income and you have a ratio or percentage. Lenders prefer a debt-to-income ratio of 35% or lower. If you have a good debt-to-income ratio, you can get an FHA loan even when you have a low credit score. So, check your debt-to-income ratio and then apply for the loan.
Getting an FHA home loan with bad credit will not be difficult for you when you come with a large down payment, will be ready to pay a higher interest rate, and ensure a good debt-to-income ratio. So, follow these steps and then apply for the loan program.
Author Bio: Joan Gallardo, a Senior Loan Officer, with 20+ years of experience, here writes on 2 questions to ask the best mortgage lender in Houston when you are about to choose one of the first time home buyer programs in Houston.