MONEY home loans

Why You Might Have a Better Shot at Buying a Home Than You Realize

House keys on top of mortgage loan agreement
moodboard—Getty Images

If your financial situation isn't perfect, here's how to work within the four pillars of mortgage lending to get approved for a home loan.

Did you have a bad credit event in recent years? Do you have less than two years in the same career field? Is your monthly income less than three times your proposed payment? Fear not, when your financial picture doesn’t fit neatly into the box, you may still qualify with some lenders. Here’s how.

When you apply for a mortgage, lenders use four pillars to measure your finances and put together a loan suited to your purpose. Your credit, debt, income and assets play integral equal roles in lenders’ eyes. Let’s break down the nuts and bolts of what lenders want to see on loan applications, and how working within these four pillars may help you find a mortgage to suit you, even if your situation isn’t “perfect.”

Credit

The credit score is the best-known financial barometer to predict a borrower’s future likelihood of default. Of course, you’re not planning to get a mortgage to subsequently go delinquent, but lenders nevertheless use it to measure your payment predictability. Lenders want a credit score of at least 620 or better. Beyond the credit score is the credit report, which reveals details about your past and current financial habits. Mortgage companies consider delinquent payment patterns a red flag — including old collections of all kinds, past-due balances even on accounts that are no longer active. Expect an inquisition on such accounts.

So what if you have a previous bankruptcy, foreclosure, short sale or loan modification? What if more than one of these events exist in your credit history? Again, fear not, but do be prepared to answer all questions regarding such events. If you have supporting documentation, provide it to your mortgage broker upfront. Generally, even today you can still get a mortgage just a few years out of one or more of these credit events. Most commonly, there’s a three-year wait time for government financing (i.e., FHA) and seven years on conventional financing (with the exception of a short sale — the waiting time is now four years). The most recent date is considered if one or more such credit events exist in your credit history.

Active trade lines (meaning open credit) are another lending hot button. You’ll need to have at least two forms of open and available credit that you use regularly – that doesn’t necessarily mean carrying a balance, but it does mean you need to show credit activity. Unfortunately, gone are the days of using alternative forms of credit, like a cell phone bill or a cable bill, in lieu of credit report trade line.

Checking your credit in advance of applying for a mortgage can give you time to work through any issues, or to take time to work on your credit score if it needs to be higher. You can check your credit reports for free once a year from each of the three credit reporting agencies, and you can see two of your credit scores for free on Credit.com.

Debt

A lender wants to see every single minimum payment obligation you have – whether or not it’s on your credit report — independent of your general household expenses.

The typical forms of debt a lender must account for when determining how much mortgage you can afford are: any form of car payment, minimum payments on credit cards, student loans, personal loans installment loans, alimony or child support, garnishments and IRS debt.

This seems simple enough, but sometimes the way a debt is listed on your credit report can cause a problem. Let’s take a common example: Student loans. You may have multiple student loans through one creditor, and they are all listed out on your credit report that way, but you make one monthly payment to that creditor for the multiple loans. The fix: You’ll need to provide your mortgage broker a payment letter from the creditor identifying what loans are included with the student loan creditor and the amount of your monthly payment.

Another common issue is co-signed loans – specifically, loans someone else took out that you co-signed. In order for the other party’s debt to not hurt your mortgage application, you’ll need to provide documentation that the other person is making the payment directly to the creditor and has been since either the inception of the loan or the most recent 12 months. This is usually accomplished with bank statements or canceled checks. Reducing your debt load is immensely beneficial when trying to qualify for a loan.

Income

Lenders must be able to show that your income supports your proposed mortgage payment plus your other debt payments. If your debt, including the proposed mortgage payment, exceeds 45% of your income, you may need to look for less house, borrow less money, or pay off some of your debts to improve your numbers. (You can use this calculator to give you an idea of how much house you can afford.)

When it comes your income history, lenders like to see a minimum two-year period of working in the same or a similar field. Don’t have it? That’s OK. Make sure you explain this to the lender in writing, and be sure include any occupational gaps. If you’re an hourly wage earner, expect your banker to average your year-to-date income. If you’re salaried, it will be much more transparent in terms of qualifying because typically a salary is a more stable form of income.

Assets

The down payment amount you have can dictate the loan program and ultimately how much mortgage you can handle. Assets include both funds for a down payment as well as savings in the bank post-closing of escrow. Mortgage brokers, banks and lenders expect to see two to six months of savings post-closing, and at least 3.5% of the purchase price for down payment. If you have access to funds that aren’t yours, gift money, for example, is a viable alternative, just be sure provide the full paper trail in any exchanging of funds.

*Mortgage tip: When buying a single family home, your full down payment funds can be gifted.

If you’ve been told that you can’t get approved for a mortgage, get a second opinion — perhaps even a third or fourth. Make sure to disclose all the pertinent known facts about your financial situation. A quality professional will ask you to provide details on the who, how, what, when, where and why — which can help make your quirky financial picture much more cohesive and thus more likely to get you approved for a mortgage.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Ask the Expert

When a Reverse Mortgage Does—and Doesn’t—Make Sense

For Sale sign illustration
Robert A. Di Ieso, Jr.

Q: My wife and I have no heirs. Our home is worth about $700,000 and nearly paid off. We’re thinking of taking a reverse mortgage at retirement. How does this work, how much could we get, and is it even a good idea? —Larry, Chesapeake Beach, Md.

A: A reverse mortgage is exactly what it sounds like: You are borrowing against the equity in your home, but instead of paying the bank every month, the bank pays you.

Like any home equity loan, a reverse mortgage allows you draw equity out of your house while continuing to live there. Its big advantage over other home equity borrowing is that you don’t have to pay back a dime while you live in the house, but once you sell or are no longer able to occupy the home as your primary residence, the total loan balance, plus interest and fees, must be paid in full.

You can receive the loan as a lump sum, a monthly amount, or a line of credit (essentially, a checkbook you use to spend the funds as needed), or some combination of these. If you still owe money on your mortgage, the new loan can be used to pay off the remaining balance.

The amount you can borrow depends on a variety of factors, including current interest rates, an appraisal of your home, your age (you must be at least 62 to qualify for a reverse mortgage), and your credit rating. The maximum amount allowed by the federal government is $625,000 for 2014. Reverse mortgage interest rates are fairly low, currently around 2% for a variable rate and around 5% for a fixed rate.

As good as that all sounds, there are serious pitfalls to reverse mortgages, says Sandy Jolley, a reverse mortgage suitability and abuse consultant in Los Angeles. The big one is that you’re spending down what’s likely your largest asset. Even though you don’t have heirs to leave the house to, you might need it later to help pay for assisted living or extended home health care. And you cannot take out another home equity loan once you have a reverse mortgage.

Also, reverse mortgage fees can clock in at a whopping 4%—not just of what you borrow but of your maximum loan amount. So in your case, you could be charged $25,000 (4% of $625,000) even if you opened up a reverse mortgage line of credit as an emergency reserve and never drew out any funds. “The fees are rolled into the loan and charged monthly compounded interest until the home is sold or taken by the lender to repay the debt,” Jolley says.

Another major concern with a reverse mortgage is that the lender can call the loan—meaning you have to pay the balance immediately, even if you have to sell your home to do so—should you ever let your homeowners insurance policy expire, get into arrears on your property taxes, fall behind on home maintenance, or move into an assisted living facility for a full year.

Because of these high costs and risks, Jolley suggests using a reverse mortgage only as a last resort. Consult a trusted family member or a financial planner who’s not in the business of selling reverse mortgages about whether you really will need that money in order to live comfortably in retirement. The combination of Social Security and your retirement savings (and the lack of a mortgage payment; congrats on that!) may provide the income you need to live the way you want to live. Save your equity until you really need it.

CORRECTION: An earlier version of this story indicated that at the end of the loan the bank owns the property. The owner retains title to the home.

Read more about reverse mortgages:
When Tapping Your Home Pays
Should You Get a Reverse Mortgage?
The Surprising Threat to Your Financial Security in Retirement

MONEY real estate

103-Year-Old Texas Woman Fights to Keep Her House

Man in suit holding foreclosure signs
Pamela Moore—Getty Images

An elderly woman is battling a bank that's trying to foreclosure on her.

A 103-year-old Texas woman is fighting to keep her home after she let her insurance lapse, a CBS affiliate in the Dallas/Fort Worth area reports. Myrtle Lewis told CBS she accidentally let her insurance expire and renewed it after noticing the mistake, but the gap in coverage apparently violated the loan agreement for her reverse mortgage. Now, OneWest Bank, which holds the loan, is attempting to foreclose on Lewis.

It’s unclear if it was mortgage or homeowner’s insurance, and when contacted by Credit.com, a public relations representative for OneWest said the bank declined to comment on Lewis’s case. One thing is clear: Lewis is worried about losing her home. In the interview with CBS, she said it “would break my heart.”

Lewis took out a reverse mortgage on the home in 2003, when she was 92. Reverse mortgages are a type of loan for homeowners ages 62 and older, allowing senior citizens to use the equity they’ve built in their properties without making monthly payments. Repayment is deferred until the borrower dies, moves or sells the home, but the homeowner is still responsible for paying taxes, insurance and any other fees associated with maintaining their home. A 2012 report from the Consumer Financial Protection Bureau said 10% of reverse mortgage borrowers face foreclosure because they fail to pay taxes or insurance.

Missing insurance payments may not seem like a huge deal, especially if you correct the mistake, but it is. It’s not unheard of for homeowners to face foreclosure because of something seemingly small, like unpaid homeowners’ association fees, but there are serious consequences for not upholding your end of a loan agreement. Foreclosure will also negatively affect your credit for years.

A focal point of the CFPB’s 2012 reverse mortgage report is that these loans need to be better explained to and understood by borrowers, and it found that many lenders were deceptively marketing reverse mortgages to senior citizens. Lewis’s case may be in the process of unfolding, but no matter what happens, her story is a good reminder to consumers that there’s often not room for error with large loans. It’s crucial to understand your responsibilities before putting your financial future and well-being on the line.

More from Credit.com

This article originally appeared on Credit.com.

MONEY Debt

How One Couple Paid Off $147k of Debt (Even While Unemployed)

two birds escaping cage
iStock

Feeling overwhelmed by your debt? Look for inspiration on how to break free from this couple.

Jackie Beck and her husband once “owned” a six figure debt. They’d borrowed for their mortgage, credit cards, education, autos, and home improvement projects. Like most of us do, they’d borrowed over time, barely noticing as their balances grew and interest accrued.

Beck is not alone. The average American borrower owes $225,238 in consumer debt, including $15,263 for credit cards, $147,591 in mortgage debt, $31,646 for student loans, and $30,738 for auto financing.

What set Beck and her partner apart, however, is that they set out to pay off that debt, and after a 10-year journey, they succeeded. Today neither holds a traditional job, they maintain collective annual expenses of less than $12,000, and they’re free to pursue their passions. “Anyone can do it, too,” says Beck. “You don’t have to have debt. Life is a lot easier without it.” (See also: How One Inspiring Saver Found True Love, Shook Off Debt Denial, and Paid Off $123,000)

Getting Started

The Beck’s get-out-of-debt journey began when they decided to tackle their credit card balances. “We were just really sick of being in debt and feeling like all our money went toward the credit cards and interest,” says Beck. Paying off the balance on their cards took a full three years and Beck was unemployed for a lot of that time. “In the beginning, it took us a long time to pay things off,” says Beck. “Then we figured things out and we had more money because we had paid more off. You get better at it and it gets faster.”

She’d been deferring her student loan payments but, once the credit card bills were paid, that freed up some extra cash. “I’d been living for many years on very little money. I never would have been able to start paying on my student loans if I’d still had those credit card payments,” she says.

Beck viewed her student debt as a burden and she couldn’t wait to get rid of it. When finally she landed a job, she was able to speed her repayment schedule. “I continued to live on nothing. I put all my money toward my student loans,” she says. “Then it went super fast.” (See also: How One College Graduate Paid Off $28,000 in Three Years on a $30k Salary)

Maintaining Momentum

Beck’s husband was inspired by her student loan success and together they worked to amp up their efforts. They started paying for most of their purchases in cash, foregoing credit cards altogether. Then they decided to tackle their car loan. “After he saw what I did with my student loan,” says Beck, “he thought it would be nice to live without the car payment.”

Even with successful milestones along the way, the Becks repaid their debt at a measured pace. “We spent a lot of time getting out of the debt we had gotten into,” says Beck. “You don’t have to live like a monk the whole time. We had more money coming in and it didn’t all go toward our debt. We spent some.”

The Becks increased spending somewhat over time but even so, they began to view their mission as preparation for an emergency. In the previous years they’d taken turns being unemployed, had undergone surgeries, paid expensive veterinarian bills for their pets, and even totaled a car. They’d taken out a $10,000 home improvement loan around this time, but even though the loan came with a 0% introductory rate for the first 12 months, they realized their attitude toward borrowing had shifted. They were no longer comfortable taking on new debt. “Gradually we realized that debt is dangerous and that something could go wrong,” says Beck.

Ultimately, the Beck’s took the remaining balance from their savings account and paid off the loan. “Life doesn’t work out perfectly and, when you don’t have debt, it really changes what you’re able to do,” she says.

By the time they were able to start tackling their mortgage, their journey had become about more than just safety. They started to view it a road to freedom. According to Beck, “The fewer expenses you have, the longer you can go without a job.” (See also: The Freedom of a Debt-Free Life)

Rewarding Yourself

For the Becks, freedom was defined by the rewards they chose for themselves after they paid off their mortgage. Beck had wanted to travel to Antarctica since she was eight years old and her husband had his eye on a new car. “After the house was paid off, we spent another year saving up for those things,” says Beck, “and then we went and did them.”

Beck also started developing other streams of income and eventually left her day job. “I created the app Pay Off Debt after I paid off my student loan,” she says. “I thought other people might want to obsess about debt as much as I do.” She also started to blog about her journey at TheDebtMyth.com, and even bought a couple of rental properties, paying for them in cash.

As a couple, they’d also learned to keep their collective expenses low.

“We can live on $12,000 a year if we need to,” says Beck. “We basically have no required bills and we’re not eating ramen,” she laughs. “My husband got laid off a week after I quit my job. Neither of us has a [traditional] job now. People who owe a lot of money don’t do things like that,” says Beck, “because they can’t.”

The Beck’s get-out-of-debt journey has changed the way they think about money altogether. Now it’s common practice for them to make their purchases — even big ones — in cash. They don’t carry debt and they can live their lives freely, without the burden of owing money to anyone. Beck is even thinking about a second trip to her dream destination, Antarctica. “I’m totally going back,” she says.

Because she can.

Read more articles from Wise Bread:

How One College Graduate Paid Off $28,000 in Three Years on a $30K Salary
How One Young Entrepreneur Paid Off $40,000 in Student Debt By Age 24
Our Worst Financial Mistakes and What You Can Learn From Them

MONEY early retirement

The Most Important Move to Make If You Want to Retire Early

Small birdhouse
Michael Blann—Getty Images

Housing is the most dangerous expense for those seeking financial freedom. Here's what you can do to control those costs.

Looking to achieve financial independence and retire sooner? A top priority should be to control expenses—especially your major living expenses like housing, food, transportation, health care, and recreation. We’ll focus on the rest of these spending categories in future columns, but for now let’s take a look at housing—the single largest expense for many, and one that can all too easily sabotage your journey to financial freedom.

Housing-related decisions will impact your financial independence by years, if not decades. Homes are a downright dangerous expense variable, because price tags are high, leverage (borrowing) is usually required, and various financial “experts” with their own agendas are usually involved. And houses expose our vanities, tempting us to spend for the approval of others, instead of in our own best interests. Losses of tens of thousands of dollars are routine in real estate, and can completely derail your savings plan.

Even when you don’t suffer an outright loss, changing homes is expensive. I moved around in my 20’s, had few possessions, and rented, so the cost of relocating was minimal. Then I married, we bought our first house, and had a child. Our next move was punishing: We were forced to sell our house at a steep loss, and, because of all our new stuff, we had to hire professional movers for the first time. When we finally bought a house again, we stayed put for nearly 17 years. In retrospect, that long time in one place was an enormous help in growing our assets and retiring early.

How much does it cost to change homes? By the time you add up the costs of selling, relocating, buying again, and settling in, you can easily spend $20,000, or more. According to Zillow, closing costs to a home buyer run from 2% to 5% of the purchase price. The seller doesn’t have mortgage-related costs but is likely paying a realtor commission as high as 6% or 7%. Then there are moving costs, and the inevitable shakedown costs with any new home: painting, carpets and curtains, repairs, supplies and furnishings, and basic improvements to suit your lifestyle.

In short, changing homes is frightfully expensive, and will probably eat up most of the average family’s potential savings for several years running.

Of course there are scenarios like career moves, where you don’t have the luxury of staying in place. But anytime the choice to move is yours, stop and consider the expenses. The worst possible choice would be an optional move into a larger house that you don’t really need. You are taking on a big one-time expense, plus a bigger ongoing mortgage and maintenance obligation. If more space is truly necessary, consider instead modifying your current home: When our son reached the later teen years, we renovated a larger downstairs room so he could have more space.

Once you’re in your home, be smart about home improvement projects, especially those you can’t do cheaply yourself. Trying to create the “perfect” home is an uphill battle, at best. Borrowing to improve your home is an especially bad idea, in my opinion. You can spend vast sums of money without measurably improving your quality of life. And old assumptions about getting that money back when you sell are outdated. For 2014, Remodeling Magazine reports that the average cost-value ratio for 35 representative home improvement projects stood at just about 66%. In other words, you don’t make money when you sell: rather, you only get about two-thirds of your money back! Financially speaking, that’s a lousy investment.

Lastly, while there are situations where it makes sense, on paper, to hold a mortgage, for those truly dedicated to financial independence, the disadvantages of debt often outweigh the benefits. In general, pay off your mortgage as soon as possible. Using extra income to pay down a mortgage loan can be a solid investment in today’s low-return environment. We paid off our mortgage years before retiring, and the peace of mind was invaluable. Now, in retirement, we rent instead of own. It’s a flexible, economical, and low-hassle lifestyle.

In short, maintaining a home will be one of your largest life expenses. Pay careful attention to your housing decisions if you’re serious about financial freedom!

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

More from Darrow Kirkpatrick:

The Single Most Important Thing You Can Do to Achieve Financial Success

The One Retirement Question You Must Get Right

How to Figure Out Your Real Cost of Living in Retirement

Read next: 3 Little Mistakes That Can Sink Your Retirement

MONEY Ask the Expert

How Can I Save More?

Financial planning experts share easy ways to trick yourself into setting more money aside for your future.

MONEY Millennials

How Millennials Stalled the Housing Market Recovery

Wrecking ball hitting brick wall
Steve Bronstein—Getty Images

Millennials already have to deal with hefty debt from college, an iffy job market, and growing up in an era where MTV no longer plays music videos, but now they’re being blamed for holding back the real estate boom. Homebuilder adviser John Burns Consulting published details from a study earlier this month concluding that student loan payments will cost the housing industry 414,000 transactions this year that would have totaled $83 billion in sales.

Ouch. The ivory tower is crumbling at the foundation.

It’s been widely assumed that mounting student debt is eating away at this otherwise buoyant housing market recovery. John Burns Consulting’s study — boiled down to a free one-pager for those that aren’t paying customers that got the more thorough report — attempts to quantify the impact.

How did the adviser arrive at $83 billion? Well, we start with the 5.9 million households under the age of 40 that are paying at least $250 in student loan debt, nearly triple the 2.2 million leveraged college grads in the same predicament back in 2005. We then get to the assumption that $250 earmarked for student loan debt every month reduces the buying power of a potential homebuyer by $44,000. That’s bad, and it’s naturally worse depending on how much more than $250 a month some of these indebted students have taken on to pay back. That’s less money they can commit to a mortgage. John Burns Consulting offers up that most households paying at least $750 a month in student loan have priced themselves out of the housing market entirely.

It gets worse

The study only looked at folks between the ages of 20-40. That’s a pretty sizable lot, especially since 35% of all households in that age bracket have at least $250 a month in student debt. However, even John Burns Consulting concedes that there’s “a big chunk of households over age 40 who have student debt” as well. It’s not likely to be as bad, naturally, but it’s all incremental at this point.

This report also happens to come at a time when the housing industry is starting to flinch after a couple of years of boom and bounce. Right now everything seems great. New home sales data released this past week showed the industry’s highest monthly growth rate in more than six years. However, the near-term outlook is starting to get hazy.

Shares of KB Home KB HOME KBH 0.6832% shed more than 5% of their value on Wednesday after reporting uninspiring quarterly results. Revenue and earnings fell short of expectations, and the same can be said about its number of closings and order growth. Earlier this month it was luxury bellwether Toll Brothers TOLL BROTHERS TOL 0.0923% setting an uneasy tone after posting a year-over-year decline in the number of contracts it signed during the period and an uptick in the cancellation rate for existing home orders.

It gets better

The student debt crisis is real, and the skyrocketing costs of obtaining a postsecondary education naturally open up the debate of its necessity. However, it’s also important to remember that university grads are earning far more than those that don’t attend college.

Source: U.S. Department of Education, National Center for Education Statistics. (2014). The Condition of Education 2014 (NCES 2014-083), Annual Earnings of Young Adults.

The median of annual earnings for young adults in 2012 was $46,900 for those with a bachelor’s degree, $30,000 for those with just a high school degree or credential and $22,900 for those who did not complete high school. Those going on to grad school for advanced degrees — and that’s where student loans can really start to pile up — are at $59,600 a year.

In other words, most college grads, and especially grad school graduates, are typically better off than those that didn’t pursue higher education, even with the student loan albatross around their white-collared necks. The housing industry would be better off if colleges were cheaper or if student debt levels were lower, but the same can be said about purchasing power in general. At the end of the day, debt-saddled or not, the housing industry needs its college graduates.

MONEY buying a home

The Surprising Feature Millennials Insist on When Buying a Home

Century 21 CEO Richard Davidson explains what young, single home buyers value in a new house.

MONEY Ask the Expert

How to Find a Mortgage When Your Credit is Bad

140605_AskExpert_illo
Robert A. Di Ieso, Jr.

Q: “What’s the fastest or easiest way to rebuild my credit? I want to buy a house, and I can’t get approved.” —Tracy, Fargo, N.D.

A: “The bad news is you really do need a good score to get a home loan today,” says Keith Gumbinger, vice president of HSH.com, a website that tracks the mortgage and consumer loan industry.

If your credit score is below 700, you’ll be hard pressed to find a lender willing to give you a conventional home loan, and if you do, the interest rate and fees are likely to be far too high. So you may want to take the time to rebuild your credit before you shop for a home.

“Before you decide you should you jump in, maybe you want to step back and look at the circumstances that lead to your current credit score,” says Gumbinger. “Look at your bills. You don’t want to put yourself in a position where you could lose the home. It’s expensive to maintain a mortgage.”

To boost your credit score, first get a free copy of each of your three credit reports from annualcreditreport.com. Scan them for mistakes that could be dragging down your score and fix them. After that, repairing your credit comes down to having credit and making your payments on time.

“You can’t improve your score if you don’t have debts, so you will need a credit card or new credit line where your payment history can be recorded,”says Jack M. Guttentag, a finance professor at the University of Pennsylvania’s Wharton School and founder of The Mortgage Professor website.

You also need to avoid maxing out the cards you have. “If you have a credit card that allows you to draw up to $10,000, having a $9,500 balance will hurt you,” says Guttentag. “Having a $2,000 balance will help you.” For more on improving your credit score, check out our Money 101 guide.

Your other option if you want buy now is to get a loan through a government program designed to help less creditworthy borrowers.

The Federal Housing Administration backs loans that have more relaxed qualification standards (including down payments as low as 3.5%), and the Department of Veterans Affairs has a program that helps members of the military borrow. If you happen to live in certain rural areas, you might qualify for a U.S. Department of Agriculture lending program designed to entice people to settle in less-developed parts of the country.

For a full FHA loan, the agency says you typically must have a minimum credit score of 580. With a 10% down payment, the FHA will insure loans for borrowers with scores between 500 and 579 (below 500, you you typically won’t qualify). The VA and USDA do not set minimum credit standards.

However, these minimums can be misleading. The private lenders who actually make these loans typically have higher standards. Most FHA, VA, and USDA-approved lenders look for credit scores between 620 and 660, and your best chance for getting approved will be to have a score at the high end or above this range, says Gumbinger. If you’re close, being able to show a healthy bank balance or a monthly rent bill that’s higher than your future mortgage payment may help.

Wells Fargo, the country’s biggest mortgage lender, said earlier this year that it would accept credit scores of 600, down from 640, for FHA and VA loans. Bank of America said that it may also accept certain cases with credit scores in the low-600 range, depending on that borrower’s ability to repay the loan.

Keep in mind that these loans carry additional fees. FHA loans require an upfront mortgage insurance premium of 1.75% of the loan value, as well as an annual premium based on your loan-to-value ratio, loan size, and length of the loan. USDA loans carry an upfront premium of 2% and an annual fee. VA loans have a funding fee that varies based on factors such as the type of loan and the size of the down payment.

Even if you qualify for one of these loans, Gumbinger cautions about getting in over your head. These programs are best if your credit problems are due to a job loss or medical bill. “If this was a one-time event and you’re getting past it, then no problem,” he says. “But if you have perpetual problems that are affecting your credit score, maybe you’re not well-aligned for home ownership.”

 

 

MONEY mortgages

WATCH: How You Can Benefit from Easier Mortgages

Mortgage loans are easier to get now. Here's how you can take advantage of it.

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