We can help with bad credit mortgage loans.

Bad Credit Mortgage Loans

Are you concerned about your bad credit getting in the way of buying a home or refinancing your current mortgage? There are solutions to this problem.

Our bad credit mortgage loans are designed to provide a real-world solution for loan applicants with bad credit. I have over 17 years of mortgage industry experience, and I understand that life’s circumstances can sometimes lead to financial setbacks.

What is bad credit?

In the mortgage industry, bad credit generally refers to a credit report showing late payments, derogatory items, and/or a credit score below 660 (some mortgage lenders might say a credit score below 680).

If you have just one or a few late payments and/or have high credit card balances with a credit score between 680 – 720, that’s not bad credit. In the mortgage industry, this is generally referred to as “less than perfect credit.”

Know what’s in your credit report

Knowing what is in your credit report will allow you to understand your credit profile thoroughly, and having this knowledge will make obtaining a bad credit mortgage loan that much easier.

Information That Is In Your Credit Report

Besides the obvious data points such as your name, address, social security number, and date of birth, here is the important information that is found in your credit report.

  • Reason Codes: Reason codes are statements from the credit bureaus as to why your score is low.
  • Payment History: Payment history for all your credit cards, car loans, student loans, and more.
  • Derogatory Items: If you’ve had any collection accounts, charge-offs, tax liens, bankruptcies, or foreclosures.
  • Prior History: Your previous addresses and, if applicable, your previous name(s).
  • Credit Inquiries: The number of inquiries you’ve had in the last twenty-four months.

Reason codes quickly give you the reasons for the credit score you have. These codes pinpoint the issues, and they are listed in order of importance.

Your credit report’s payment history for each account listed goes back seven years, and if you were thirty days or more late on a payment, then that will be listed in your credit report, which might lead to derogatory items such as collection accounts, bankruptcies, or foreclosures.

Your prior history (where you used to live) and credit inquiries are at the end of your credit report, which the underwriter always reviews.

Lastly, if your report contains errors and you have documentation proving a negative item is being reported in error, consider resolving the issue before proceeding with a bad credit mortgage loan.

Do You have a question or need a quote?

Contact Kevin

Low rates, fast closings, and exceptional service.

How bad credit impacts your mortgage options

It’s no secret that bad credit impacts your mortgage options; however, what is not clear to most loan applicants is to what extent it is impacted.

Below I’ll cover this in detail and why bad credit doesn’t mean you can’t get a mortgage.

Recognize Factors That Impact Your Credit Score

By looking at three specific areas of your credit report, you’ll quickly recognize the factors that are impacting your credit score. First use the Reason Codes, then review the payment history. Once that is done, go to the end of the report to review Derogatory Items.

After you review the Derogatory Items, you’ll know exactly what factors are impacting your credit score.

How Those Factors Impact Your Mortgage Options

There is no simple method to figuring out how each negative item impacts your mortgage options, so we have to use a little guesswork and my 17+ years of experience reviewing credit reports and getting bad mortgage loans approved with underwriters.

Simply put, your bad credit is taking away loan programs that don’t allow for credit scores below a certain level. Here are the three loan programs you’ll miss out on.

  • Conforming home loans
  • Jumbo home loans
  • Portfolio home loans

When it comes to conforming home loans technically speaking, there are mortgage options for loan applicants with a below 680 credit score; however, it takes a lot of work to get approved for these loans, and the interest rates and closing costs are very high.

Jumbo home loans do not have a bad credit mortgage option, and the same can be said for Portfolio home loans.

Why Bad Credit Doesn’t Mean You Can’t Get A Mortgage.

While you will lose out on some options that someone with good to excellent credit will have, that doesn’t mean someone with bad credit can’t get a mortgage. The fact is many people with bad credit can get a mortgage.

It just requires you to work with a mortgage company like ours. Second, you’ll need to be realistic with respect to the rate you’ll be approved for and the closing costs you’ll have to pay. You will not get a rate and closing cost terms similar to loan applicants with better credit. There is no getting around this. But with proper planning, you might be able to refinance into a better loan once your credit score improves (more on this below).

Bad credit mortgage loan programs

Four bad credit mortgage loan programs are available to loan applicants with credit report issues.

FHA Home Loans – Great For Low Credit Scores

The FHA home loan program is the go-to option for loan applicants with low credit scores. There are two reasons why. First, if you have a 600 credit score or a 700 credit score, it most likely won’t matter in terms of the rate the underwriter approves for you.

Second, just because you have bad credit doesn’t mean you’ll need to make a substantial down payment. The FHA home loan program generally allows for a 3.5% down payment. A 10% down payment is required if your credit score is below 580.

And some bad credit mortgage loan applicants qualify for the FHA home loan zero down payment program.

VA Home Loans – Big Benefits For Veterans With Low Credit Scores

Did you know the VA home loan program is one of the best mortgage programs for people with bad credit? But there’s a catch: you need to be a veteran to be able to get a VA home loan. If you have bad credit, the VA home loan is an excellent solution for people who need a bad credit mortgage.

Also, Veteran Affairs allows mortgage lenders to provide VA home loans, even those seeking a bad credit mortgage loan, that don’t require a down payment. So, like the FHA zero-down program, you can get approved for a bad credit zero-down mortgage under the VA home loan program.

USDA Home Loans – Bad Credit Mortgage For Rural America

USDA home loans are perfect for rural America. And they allow loan applicants with bad credit to obtain a mortgage. Unlike the FHA and VA home loan programs, the USDA home loan program does require you to have a down payment.

Bank Statement Mortgage – A Bad Credit Mortgage Alternative

The fourth bad credit mortgage loan option is the Bank Statement Mortgage. This program is not as flexible as the FHA and VA options, but it does allow a path for homeownership even if the loan applicant has a bad credit score.

The key aspect of a Bank Statement Mortgage is the down payment requirement. If the program allows someone with bad credit to be approved, it usually requires a fairly sizable down payment of more than 20%.

Do You have a question or need a quote?

Contact Kevin

Low rates, fast closings, and exceptional service.

Mortgage companies for people with bad credit

I know what you’re thinking: this is great, but how do I find a mortgage company for people with bad credit? If you are in California, you’ve already found one (that would be us!).

Below, I’ll go over what you should look for, how to use online resources, and questions you should ask lenders before you decide to move forward.

What You Should Look For With A Bad Credit Mortgage Company

When looking for a mortgage company that provides bad credit mortgage loans, there are two things you should look for a solid reputation and experience.

Only work with mortgage companies with an excellent reputation and a loan officer with at least five years of experience.

Using Online Resources To Help You Find The Right Lender

There are a number of online resources you can use to find a mortgage company that provides bad credit mortgage loans. They are;

  • Better Business Bureau
  • Zillow
  • Yelp
  • Google Business Listing (reviews)
  • NMLS
  • State licensing agency (such as the CA DRE).

Your first stop should be the Better Business Bureau’s website. If the mortgage company has an A- rating or lower and/or has been in business for just a few years, I suggest you find another company.

Zillow is better than Yelp for mortgage company reviews, but I would still go to both. Also, go to the Google business page for both the company and the loan officer (to read reviews).

Lastly, visit the consumer website for NMLS and the state licensing agency to review the mortgage company and loan officer. Here is where you’ll find the number of years someone has been a loan officer. Remember, go with someone who has at least five years of mortgage industry experience.

Questions You Should Ask Lenders That Offer Bad Credit Mortgages

Here are the questions you should ask bad credit mortgage lenders.

What Are The Total Cost To Do This Loan for Everything?

Ask this question exactly this way, then find out the breakdown of each charged item. Don’t just ask what my costs are or what my fees are. Always ask what the total costs are for this loan for everything.

This will give you the number you need to know before you move forward with an application.

How Long Will This Take To Close?

Some bad credit mortgage companies take three to four weeks to close, and others may take six to eight weeks. Ask the loan officer how long it will take to close so you have a good idea of your closing timeline.

When Can I Lock In My Rate?

You always want to know when you can lock in your rate since there are no industry standards for when a loan office does this. A mortgage company might require you to lock in at the time of application; most allow you to lock in post-application (while in underwriting), and others won’t let you lock in until closing.

Asking these important questions will make your process of getting a bad credit mortgage easier.

Choosing the right bad credit mortgage loan

There is not one specific bad credit mortgage loan that is right for every applicant. Here are some things to consider when deciding which loan option is best for your financial goals.

Fixed-Rate vs Adjustable Rate Mortgage

Regarding a fixed-rate vs. adjustable-rate mortgage, I strongly suggest you choose a fixed rate. It provides more stability and certainty and will allow you to focus on rebuilding your credit to get a better mortgage when you refinance.

Down Payment Requirements To Consider

When it comes to the down payment requirements for the different bad credit mortgage loan options, consider putting down at least 3.50%, even if it’s not required. If you can put down more, I suggest you do that so your monthly payments are lower.

Second, ensure you have enough left over for an emergency fund (three months of expenses) in case something happens with your job or business.

Pros vs. Cons List

I believe in doing a pros vs. cons list to help you decide what is best for you and your long-term financial goals. Use a piece of paper, write out all the pros and cons, and maybe include a few questions to answer. Questions like the following;

  • Can I afford the payment?
  • Are the closing costs reasonable?
  • Does this help me get closer to my long-term financial goals?

Doing a pros vs. cons list will prove to be valuable to your decision-making process.

Navigating the loan application process with bad credit

Here is how someone with bad credit can navigate the loan application process with your mortgage company.

Mortgage Pre-Approval For Low Credit Scores

The first step is getting a mortgage pre-approval. To do that, you’ll want to talk with your loan officer about your credit history and how the negative items happened. Don’t try to hide anything, as that may cause issues.

After talking with your trusted loan officer and hearing what your options are, you’ll then want to complete the loan application and send in your necessary documentation.

After the loan officer reviews your application and documentation, they will obtain a pre-approval and then send the file to underwriting. If you meet the underwriting guidelines, The underwriter will consider everything and approve the loan application.

Debt-To-Income Ratio – Why It’s Important

Your debt-to-income ratio will play a big role in getting a full approval from an underwriter. Your debt-to-income ratio compares your income and your total monthly debt payments (all debts). You’ll want a debt-to-income ratio below 40% for bad credit mortgage loans, but guidelines sometimes allow it to go up to 50%. In rare cases, it can even go higher than that.

What does a 40% debt-to-income ratio mean? This means that 40% of your income goes towards paying your debts. Regarding bad credit mortgage loans, the lower your debt-to-income ratio, the better.

Stable Employment (Or Business) History

Show the underwriter a stable employment history (or that you’ve owned your business for more than just a few years) is a great way to help you get approval.

When you have bad credit, showing employment stability or business stability is one way you can over come the hurdle of having bad credit.

Ways to improve your credit for better mortgage options

So you get your mortgage, and now what? I suggest you start cleaning up your credit history and improving your credit score so you can be eligible for better mortgage options in the future.

Steps To Boost Your Credit Score

The best thing you can do to boost your credit score is stop missing payments. The second best thing you can do to boost your credit score is to pay down your credit card balances to 30% of the total available credit.

Credit Counseling Services

A credit counseling service can be a great avenue of hope for those with bad credit. They can provide guidance and real-world solutions to your credit problems and help you establish a long-term financial goal. They’ll review your credit, explain the positives and negatives, and set you on a course for improving your credit history and credit score.

Making A Long Term Plan To Improve Your Credit Score

Make a long-term plan to improve your credit score. Don’t just think about it; write it down and review it monthly to ensure you are staying on the path of a higher credit score.

Do You have a question or need a quote?

Contact Kevin

Low rates, fast closings, and exceptional service.

Bottom line on bad credit mortgage loans

Getting a bad credit mortgage loan is not impossible. Someone with bad credit will miss out on specific loan options; there are avenues for getting a home loan. Before you start your search, you can learn what’s in your credit report and see if you can resolve any errors before moving forward with a bad credit mortgage loan (talk with your loan officer about your options to fix errors).

When you choose a mortgage company to work with, please make sure that the company is highly rated and only work with a loan officer with at least five years of experience.

Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 17 years of experience as a Mortgage Loan Originator and is a trusted resource for mortgage education and information. He's the content creator of K.O. Home Loan Solutions and is licensed by the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. You can contact him at 1-800-550-5538. CA DRE #01499872 / NMLS #247447