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If you have bad credit, a home mortgage is a valuable tool
for rebuilding your credit, but it may seem almost impossible to obtain. Most
banks will turn away borrowers with a credit score of less than 640. However,
nearly 25% or 42.5 million credit using Americans fall into this category. If
you find yourself searching for Arizona
mortgages for bad credit borrowers, you might want to look into an FHA
loan. There are FHA loan programs with a FICO Score as low as 550.
The Federal Housing Administration is a government agency
that is responsible for helping to insure home loans. In order to qualify for
an FHA loan, an applicant must make arrangements with an FHA accredited lending
institution. The federal government via the Federal Housing Administration then
insures the lending institution against loss in case the borrower fails to pay
their mortgage on time. The borrower pays an insurance premium for this service
of .8% of the loan amount upfront (usually financed into the loan amount) as
well as monthly PMI payments. In order to qualify for an FHA the borrower also
has to make a 3.5% down payment at closing.
An FHA loan primarily serves individuals who cannot afford to make a
traditional down payment or who may have less than perfect credit.
Banks and lenders are more willing to give out FHA loans as Arizona mortgages for bad credit
because there is a two tiered system of insurance to prevent loss in case of
default. The first type on insurance is an upfront payment that is rolled into
the cost of the loan. The second type of insurance is a mortgage insurance
premium or MIP. The MIP is paid monthly and is added onto the cost of the
mortgage payment. The MIP is a percentage of the loan amount that is determined
by the value to debt ratio of the property as well as the length of the loan
term. If you decide to obtain and FHA loan, it is important to keep in mind
that you will make higher monthly payments due to these types of insurance.
The FHA Loan Process
If you have been researching Arizona home loans for bad credit and have decided that an FHA loan
is a good option for you to purchase Arizona real estate, it is important to
know what to expect in the qualification process. One key detail is that the
Federal Housing Administration does not make loans. In order to obtain a loan
you need to find an FHA approved bank or mortgage broker. Each bank can set its
own interest rates and loan terms so it is important to shop around. A mortgage
broker may be a better option because a broker can shop different banks for you
to find the most favorable loan terms.
If you have little credit or bad credit, the FHA will also
allow for a co-signer or co-borrower. Unlike other loans, the co-borrower does
not have to live at the property with you but you can use their credit score to
help you qualify for the loan. The FHA also has a hybrid adjustable rate
mortgage program that can allow borrowers with high debt to income ratios to
take advantage of low interest rates to purchase a home.
If you are looking
for Arizona home mortgages for bad credit,
an
FHA loan may be a good option for you.
As with all loans, there are pros and cons related to FHA
mortgages. They can be a good tool to help low-income buyers or borrowers with
bad credit, or first time homebuyers without the resources to make a hefty down
payment. It is important that you meet with an Arizona mortgage broker to discuss
FHA loans along with other programs related to Arizona mortgages for bad credit. Talking with a broker will ensure
that you know all your options and can make an informed decision about your
home purchase.
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027
23335 N 18th Drive Suite 120
Phoenix AZ 85027
