Bad Credit Mortgage Options

Bad Credit Mortgage Options For First-Time Homebuyers

Gustan Cho Associates are mortgage brokers licensed in 48 states

We will cover and discuss frequently asked questions about Bad Credit Mortgage Options for first-time homebuyers. Renters or those who are currently living with a family and deciding in getting a mortgage as a first-time home buyer with bad credit often don’t know where to turn to with the countless questions they face.

Bad Credit Mortgage Options For Homebuyers With Collection Accounts?

Some frequently asked questions about first-time home buyers with bad credit include what is the minimum credit score requirements, how much do I need for the down payment and closing costs, can I have collections, do I need to pay unpaid charged-off accounts, can I get a mortgage with bankruptcy, can I get a mortgage with repossession, and dozens of other questions. Here are some of the common questions a first-time home buyer with bad credit has and the answers” In this article, we will cover and discuss First Time Home Buyer With Bad Credit Mortgage Guidelines.

Read More About First-Time Home Buyers

Common FAQs on Bad Credit Mortgage Options For First-Time Home Buyers

What is the best mortgage program for First Time Home Buyer With Bad Credit? The most common first-time homebuyer with bad credit is FHA loans.

Best Mortgage Options For Bad Credit

The Federal Housing Administration (FHA) is a government agency under the HUD agency Guidelines. The purpose and mission of FHA are to promote homeownership among Americans. FHA’s role is to make it possible with a 3.5% down payment, especially for a first-time home buyer with bad credit. This is done by insuring home loans originated and funded by private lenders in the event borrowers default on their FHA loans. FHA is not a lender. Its only role is to insure owner-occupant one to four-unit residential mortgages that meet HUD Guidelines

Minimum Down Payment Options For Home Buyers With Bad Credit

What are the minimum credit scores and down payment requirements on FHA loans? To qualify for a 3.5% down payment FHA loan, borrowers need a 580 FICO middle credit score. Homebuyers with credit scores under 580 FICO down to 500 FICO can qualify for FHA loans. However, the minimum down payment requirement is 10%.

Can Home Buyers With Bad Credit Qualify For FHA Loans?

FHA loans are the most popular loan program for first-time home buyers with bad credit. HUD, the parent of FHA loans, has created very lenient guidelines for homebuyers with prior bad credit. The answer is yes to can home buyers with bad credit be able to qualify for FHA loans.  First-Time Home buyers with bad credit can qualify for FHA loans without the need of paying off outstanding collections and charge off accounts. However, most lenders want to see timely payments by borrowers for the past 12 months. Manual underwriting requires borrowers to have been timely for the past 24 months.

Benefits of Being a Homeowner Versus Renter

Buying a home, especially for first-time home buyers, is one of the most important decisions that any person will make in their lifetime plus it’s the biggest investment most people will make in their lifetime. Unlike buying a car, boat, or any other high-cost item a home purchase is different. It is where people set lifelong memories and build families. A home is where you will come home everyday day from work. A home is a place where children are raised and friendships are formed. A home is a place where family members consider it a safe haven.

Steps In The Home Buying Process

A home purchase is a process. There are multiple steps in the home buying process that every homebuyer needs to understand. Especially first-time home buyers and first-time home buyers with bad credit. The home buying process is not difficult. Does not need to be stressful once people are prepared and know what to expect. The home buying process should be taken like any other big-ticket item purchase such as a car or RV purchase or boat purchase. What do consumers who shop for high-ticket consumer items do? They research and do their due diligence. The internet has countless valuable resources for a first-time home buyer with bad credit, lenders, loan officers, real estate agents, neighborhoods, builders, school districts, real estate taxes, and mortgage guidelines.

How To Avoid Stress During The Mortgage Process

The first step in the home buying process is to consult with a mortgage loan officer and get pre-approved. Not lenders have the same mortgage lending requirements. Most mortgage lenders have lender overlays. Lender overlays are additional requirements that are above and beyond those set by HUD. For example, HUD requires a 580 credit score to qualify for a 3.5% down payment.

Do Mortgage Lenders Have Different Requirements for The Same Loan Program?

There are lenders that require higher credit score requirements such as 600, 620, or 640 middle credit score even though HUD requires 580. The additional higher FHA lending requirements are called Overlays. First Time Home Buyer With Bad Credit may want to ask the loan officer they consult with what type of lender overlays they have. There are overlays on just about everything from credit scores, debt to income ratios, collections accounts, charge-off accounts, credit tradelines, and even waiting periods after a bankruptcy.

Documents Required For Starting The Mortgage Process

Documents Required to process mortgage include information such as tax returns, W2s, bank statements, paycheck stubs, and dozens of other items pertaining to credit and financial history that need to be provided. For a first-time homebuyer, it can be overwhelming, confusing, and scary. One first-time homebuyer who recently closed on his first home told me that the home buying process for him seemed like going through an IRS audit. It is really not all that bad. A real estate broker and your mortgage broker will help a first-time homebuyer go through this process. Everyone works as a team to get to the closing.

Mortgage Rates For Homebuyers With Bad Credit

Can I Buy a House With a Conventional Loan With Bad Credit?
Can I Buy a Home With a 3% Down Payment Conventional Loan With Bad Credit?
For a first-time homebuyer with excellent credit scores and who wants to make a substantial down payment, a conventional loan may be a better option. Home loans that conform to Fannie Mae and/or Freddie Mac Standards are called Conventional loans. First-time homebuyers can put a 3% down payment on conventional loans. Under Fannie Mae/Freddie Mac Guidelines, first-time homebuyers are defined as any home buyer who did not have any homeownership in the past 3 years A home buyer needs to put down a minimum of 5% on conventional loans.

Private Mortgage Insurance on Conventional Loans

The private mortgage insurance premium is required on conventional loan borrowers unless borrowers put down 20% or the home has 20% or more equity. Private mortgage insurance premium on conventional loans depends on the borrowers’ credit scores, credit profile, type of property, and other factors and is not a set amount like FHA loans. One major advantage of having a conventional over an FHA loan is that conventional loan private mortgage insurance can be canceled when the home’s loan to value reaches the 80% LTV mark.

VA Loans for First-Time Home Buyers With Bad Credit

Veterans of the armed forces have a major benefit through the VA Mortgage Loan Programs. Veterans with a VA loan Certificate Of Eligibility (COE) are eligible for a VA mortgage loan. VA offers 100% financing to veterans who qualify for VA loans. A major advantage of a VA loan is that there are no monthly mortgage insurance requirements with 100% financing. There is a one-time funding fee that each veteran home buyer has to pay but that can be rolled into the balance of the VA loan. We have VA loan programs where all closing costs can be included as part of the VA loan package.

Loan Limits For First-Time Home Buyers 

Most first-time home buyer mortgage loan programs are geared towards homes with a maximum loan amount of $647,200, unless the house is located in a high-cost area like many counties in California, Illinois, and Florida. Mortgages over $647,200 are considered Jumbo Loans. Most Jumbo loans normally require a minimum of a 20% down payment. Mortgage rates are slightly higher than FHA, VA, or conventional loans. Gustan Cho Associates has relationships with Jumbo Investors which only require a 5% down payment A first-time home buyer with bad credit who needs a lender with no lender overlays, please contact us at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at   

First-Time Home Buyers With Bad Credit Mortgage Options

First Time Home Buyer Mortgage Guidelines enable renters or those living rent-free with a family to qualify for their very first mortgage. Most first-time homebuyers are under the impression they need a 20% down payment and perfect credit. Under First Time Home Buyer Mortgage Guidelines, this is not true. First-Time Home Buyer Mortgage Guidelines state that buyers can qualify for home loans with little to no down payment and less than perfect credit. USDA and VA Loans do not require any down payment.

Can I Buy a House With No Money Down?

USDA and VA Loans offer 100% financing. Outstanding collections and charged-off accounts do not have to be paid to qualify. No worries about closing costs. Gustan Cho Associates Mortgage Group will help buyers get sellers concessions from sellers to cover all or most of closing costs. For borrowers who are short-paying for closing costs, we can offer lender credit in lieu of slightly higher mortgage rates. In the following paragraphs, we will cover First-time Home Buyer Mortgage Guidelines and steps in becoming a homeowner with no stress.

Bad Credit Mortgage Options For Home Buyers With No Credit Scores

Buyers do not have to be stressed when buying their first home. Many heard horror stories about how awful and stressful the mortgage process is. The main reason for stress during the mortgage process is that inexperienced loan officers are improperly qualified borrowers. The reason for last-minute mortgage denials is due to loan officers not properly qualifying borrowers. Over 75% of our borrowers at Gustan Cho Associates are folks who either got mortgage denial and/or are stressed during the mortgage process. Gustan Cho Associates closes 100% of all of our pre-approvals.

FHA Lenders With No Lender Overlays

We are one of the very few national five-star lenders with no overlays on government and conforming loans. Not all FHA, VA, USDA, and Conventional Lenders have the same mortgage guidelines. Just because borrowers got denied from one lender does not mean they cannot qualify with another lender. We assure you that pre-approved borrowers will not just close their loans but will close them on time.

What Down Payment Do I Need To Buy a House With Bad Credit?

With the exception of VA and USDA Loans, all loan programs require a down payment. Gustan Cho Associates are experts in helping first-time home buyers. Our team of mortgage professionals can explain each individual loan program that best suits the borrower. There are many first-time homebuyer loan programs with little down payment required. VA Loans offers 100% financing but the borrower needs to be a veteran of our U.S. Military with COE to qualify. USDA Loans has certain property and income restrictions. FHA Loans are one of the most popular loan programs. Freddie Mae and Fannie Mae have low down payment loan programs for first-time homebuyers

Types of Bad Credit Mortgage Options For Home Buyers

FHA loans are by far the most popular loan program for first-time homebuyers. Borrowers can qualify for FHA Loans with a 3.5% down payment, credit scores down to 580, and less than perfect credit. Borrowers with under 580 FICO and down to 500 can qualify for FHA loans. However, HUD requires any borrowers with under 580 credit scores to have a 10% down payment. Borrowers can qualify for FHA Loans two years after Chapter 7 bankruptcy. There is a three-year waiting period after foreclosure and/or short sale. Borrowers can qualify for FHA and VA Loans one year into a Chapter 13 Repayment Plan with Trustee approval. There is no waiting period after the Chapter 13 Bankruptcy discharged date.

Freddie Mac First-Time Home Buyers With Bad Credit Mortgage Guidelines on Home Possible

  • Freddie Mac Home Possible requires a 3% down payment
  • Home Possible was mainly created for first-time home buyers
  • Others who benefit from Freddie Mac Home Possible are buyers who are upsizing to a larger home
  • Retired and limited income buyers can benefit as well due to the low down payment requirements with 3% on one unit and 5% for 2 to 4 unit multi-family owner-occupant homes
  • There are income limits on homes possible 
  • The Income and Property Eligibility tool can be used to see if borrowers meet the income caps

Freddie Mac HomeOne Mortgage Guidelines

Gustan Cho Associates offers Freddie Mac’s HomeOne:

  • 3% down payment by home buyers
  • There are no income limits
  • Buyers can purchase a home in any area and are not restricted by the county
  • Excellent loan program for first-time home buyers

Fannie Mae HomeReady Mortgage Guidelines

Gustan Cho Associates offers Fannie Mae HomeReady Mortgage Loan Program:

Grant And Down Payment Assistance Loan Programs

There are down payment assistance and grant programs. Every state and county has its own special down payment assistance and/or grant programs for first-time homebuyers. Many down payment programs have maximum income restrictions. Many have their own credit score requirements. Some down payment assistance programs have repayment requirements while there are some with no repayment required. Check with your local state and/or county government to see the types of DPA Programs available.  First-time home buyers with any questions, please contact the Mortgage Professionals at Gustan Cho Associates at 800-900-8569 or text us for a faster response. Or email us at

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