First Time Home Buyer With Bad Credit Mortgage Guidelines

This BLOG On Mortgage For First Time Home Buyer With Bad Credit Was Updated And PUBLISHED On January 27th, 2020

What are the wrong guidelines for mortgage loans to buy a home

Renters or those who are currently living with a family deciding in getting a mortgage as first time home buyer with bad credit often don’t know where to turn to with the countless questions they face. 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.

FAQ First Time Home Buyer With Bad Credit

What is the best mortgage program for First Time Home Buyer With Bad Credit?

  • The most common first time home buyer with bad credit are FHA Loans

What are FHA Loans?

  • The Federal Housing Administration (FHA) is a government agency under the U.S. Housing and Urban Development (HUD)
  • The purpose and mission of FHA is to promote homeownership to Americans
  • FHA role is to make it possible with 3.5% down payment especially for 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 Loan
  • FHA is not a lender

Its only role is to insure owner-occupant one to four-unit residential mortgages that meet HUD Guidelines

FHA Down Payment Requirements

What are the minimum credit scores and down payment requirements on FHA Loans?

  • To qualify for a 3.5% down payment FHA Loans, 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 First Time Home Buyer With Bad Credit Qualify For FHA Loans?

  • Yes
  • First Time Home Buyer 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 past 12 months

Benefits Of Being Homeowner Versus Renter

What are the benefits of being a homeowner versus a tenant

Buying a home, especially first time home buyers, is one of the most important decisions that any person will make in their lifetime plus its 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 in the following ways:
  • It is where people set lifelong memories and build families
  • home is where you will come home everyday day from work
  • A place where children are raised and friendships are formed
  • A place where family members consider it safe haven

Home Buying Steps

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 buyer 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 due their due diligence
  • The internet has countless valuable resources for first time home buyer with bad credit, lenders, loan officers, real estate agents, neighborhoods, builders, school districts, real estate taxes, and mortgage guidelines
  • 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 of those set by HUD
  • For example, HUD requires a 580 credit score to qualify for a 3.5% down payment
  • However, 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 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 need to be provided
  • For a first time home buyer, it can be overwhelming, confusing, and scary
  • One first time home buyer 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
  • Real estate broker and your mortgage broker will help a first time home buyer go through this process
  • Everyone works as a team to get to the closing

How Can I Qualify For Mortgage As A First Time Home Buyer With Bad Credit

There are several mortgage loan programs for first time home buyers.

  • The first and most popular loan program for a first time home buyer is FHA Loans
  • FHA loans are very popular for the first time home buyer
  • This is because of the low down payment requirements and the lenient credit criteria required to qualify

FHA Loans is very popular:

  • Makes homeownership affordable to all hard-working Americans
  • One negative factor with FHA Loans is the borrower will be stuck with paying annual FHA mortgage insurance premium of .085%of the loan amount for the term of a 30-year loan  

FHA mortgage insurance is 0.85% of the loan amount:

  • This amount needs to be paid every year on a monthly basis along with the mortgage payment

FHA also requires a one time upfront FHA mortgage insurance premium of 1.75% which is normally added on the balance of the loan balance.

Mortgage Rates For First Time Home Buyer With Bad Credit

What is the high mortgage rate for first-time buyers with a bad loan?

For a first time home buyer 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 home buyers can put 3% down payment on Conventional Loans
  • Under Fannie Mae/Freddie Mac Guidelines, first time home buyers 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% down on Conventional Loans
  • The private mortgage insurance premium is required on conventional loan borrowers unless borrowers put down 20% down 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

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 $484,350, unless the house is located in a high-cost area like many counties in California, Illinois, and Florida.
  • Mortgages over $484,350 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 5% down payment

First time home buyer with bad credit who need a lender with no lender overlays, please contact us at Gustan Cho Associates at 262-716-8151 or text us for faster response. Or email us at [email protected]

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  • I had filed for bankruptcy (Chapter 7) and was discharged in March 2019. Due to COVID, I used the forbearance for 6 months and missed two payments. I made up the two payments and now my mortgage is current. Is it possible for me to get a refinance or a home equity loan? Please advise on this. I had applied for several companies and were dismissed without a loan due to the two months of missing a payment during the forbearance. Thanks for your help!

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