Were there bad times and bad credit in your past? Are you looking to make a fresh start and buy a home? Here are the guidelines for buying a home with the Fresh Start Loan Program.
* No waiting period after a bankruptcy (BK), short sale, deed-in-lieu, or foreclosure.
* However, the short sale or foreclosure must be completed, not pending, at the time of application.
* Chapter 7 BK must be discharged.
* Chapter 13 BK must be filed, but it can be open with payments being made on time. The court needs to approve the purchase.
* Property can be a detached house, a warrantable condominium, or a one-unit cooperative. (Not a manufactured home.)
* Debt-to-income ratio up to 50% DTI. (55 DTI with compensating factors, but I don’t recommend it.)
What’s the catch?
With such generous approval guidelines, is there a catch? Yes, you must have a good down payment to show that you are willing to take a risk on yourself. What does that mean?
If you aren’t willing to put money into the deal, then the lender feels like it’s too easy for you to walk away and leave them taking on the expense of reselling the property. They don’t want that! They want a home owner who is back on track financially and will make all their payments on time.
The silver lining is that the down payment can be gift money from family. Or, if you have 5% of your own money, the remainder can be a gift.
Here are the Down Payment Requirements
640 credit score = 15% down payment required
620 credit score = 20% down
580 credit score = 25% down
The credit score is the middle score out of three scores from Equifax, Experian, and TransUnion. The lowest score is ignored. The credit report is pulled by the lender.
How to Get a Loan with Fresh Start
Your mortgage broker can get the Fresh Start loan program for you through their wholesale channel. This is not a program you get at a bank or credit union. You get it through a broker. If you’re in California or Washington (and soon Oregon), then I can be your broker. For other states, find a broker in your area.
There are other non-prime loan programs available, but I wanted to highlight this program today, because of its generosity with no waiting period after a major derogatory credit event.
As always, thank you for reading my blog and passing it on to anyone who might benefit from the information.
Imperfect credit? Be encouraged with this success story.
Two days ago, I closed a loan for a lovely couple whose credit suffered all due to an uninsured driver slamming into their car so hard, it knocked the husband unconscious and threw them both in the hospital, fighting for their lives.
Naturally, they could not carry on with their business during this time, so they ended up with a state tax lien and a medical collection on your credit report.
Now that they’ve recovered and are back to work, they were approved for a conventional loan (better than FHA).
In addition, because they had not owned a home in the last three years, they got a first-time homebuyer’s program with a .125 lower interest rate.
- Down payment required was 3 percent; although, they chose to put down more to get a smaller loan and payment.
- They did not have to pay off the collection account.
- They did have to pay the state tax lien, and that was easily done by adding to the cash-to-close. The closing agent collected the funds and paid the state at closing. This way, there was no complication with getting the proof that it was paid, and it saved them the hassle of doing it early.
The loan closed in only 28 days. Pretty good for our busy market!
Better Interest Rate
As a loan officer for a full service mortgage lender, I have the option of using our own company money or brokering out the loan to a wholesale lender. By brokering out, they got an interest rate of 3.875% rather than 4.25%. This saves them $37 per month and $444 per year.
Congratulations! They are in their own home just in time to enjoy the gorgeous autumn leaves and upcoming Thanksgiving holiday.
If your credit has some dings, you may still be able to become a home owner. If you’re in WA or CA, I’d be happy to take a look for you. Contact me here. If you’re in a different state, check in with your local full service mortgage lender who will have more choices for you than a big, stuffy bank or fussy credit union.
“Can I buy a house with bad credit on my report?” She felt like she was being unfairly profiled and locked out of buying a house. She knew she could afford the mortgage payment; after all, the rent she was paying was higher than that.
Maybe her credit was inaccurately placing her in a category in which she did not belong. Maybe it is happening to you or someone you know. Here is what landlords say about people with low or no credit score.
“It is a fact that lower credit score individuals engage in riskier behaviors… Lighting off fireworks in a high-density environment, fighting, speeding, being drunk in public, DWI, driving without insurance, dealing and using drugs, etc. would be examples of risky behaviors that we would want to avoid.”
~No Nonsense Landlord
Does that describe you or the person you know who has a lower score than average? Maybe not, but that is what “they” are thinking about you when they see your credit score or see that you have no score.
A gentleman, a construction worker, wrote to me after his credit score took a dive and he wanted to restore his good name. It all started when a truck ran over his foot. He couldn’t work and medical bills piled up and slipped into collections faster than his insurance company took care of business. He was neither irresponsible nor a deadbeat. He didn’t light fireworks off in crowds nor did he drive drunk or deal drugs.
You don’t need perfect credit to buy a house. A score of 580 will qualify you for an FHA loan with some lenders, and a score of 620 will qualify you for a conventional, VA, or USDA loan. However, you will have to take a higher interest rate and make a higher payment with those scores. I think it is worth taking a few months to raise your score first.
You will save yourself a lot of money if your score is at least 620 rather than 580 for the FHA loan.
Similarly, if your score is at least 740 rather than 620 for the conventional loan.
Your credit score is something you control. It is a number, and when you understand what it takes to get that number, you can make it happen. There is no need to be a victim of the credit system.
“No one can get bad credit off of their report” is a false statement. People — lawyers, credit repair specialists, and individual citizens — do get bad credit off of their reports every day of the year that the credit bureaus are open.
If you’d like to know how this is done, if you’d like to boost your credit score and qualify for a GOOD home loan, then take a look at Repair Your Credit Like the Pros: How credit attorneys and certified consultants legally delete your bad credit and restore your good name. It contains insider information from some of the top credit specialists on the planet. Loan officers and journalists tell you it’s impossible… and all the while, these people are quietly raising their scores.
If you have questions, I am happy to help the best I can. Your comments are welcome. Thanks for stopping by.
You might be able to buy a house even with bad credit, as long you have a sufficient down payment. Sub-prime loans and hard money loans are still alive and available.
These loans are designed to be temporary. The idea is that the borrower gets into the home they want now, before prices go up further, and then cleans up their credit so they can refinance into a good conventional loan within a couple years.
Here are a couple scenarios for today’s sub-prime loans:
Bad Credit Scenario #1
Credit score 550
Down payment required: 30%
Interest rate: 9.25% with 1 point
Bad Credit Scenario #2
Credit score 550 with a foreclosure one year ago.
Down payment required: 45%
Interest rate: 9.625% with 1.5 points
The New Breed of Sub-prime Mortgages
The big difference between these loans and the sub-prime loans of pre-2007 is that a large down payment is required. When it’s time to refinance, the home owner has the equity to do so. In the past, sub-prime loans were offered at low down or zero down, which made refinancing impossible — especially when values dropped and they found themselves owing more than their property was worth.
Are Sub-prime Loans a Good or Bad Idea?
Personally, I would not pay the high price for a sub-prime loan. I would rather wait until my derogatory credit was cleaned up and then buy. However, I love having options. This is America, the land of opportunity. And there are situations in which it makes sense for both borrower and lender to take a sub-prime loan.
As always, your comments are welcome. (To comment, see top of this article.)