#buying a car with bad credit
Buying a Home With Bad Credit
Elizabeth Weintraub has an extensive background in real estate spanning more than 30 years, including experience in related industries such as title and escrow. She is a full-time broker-associate at Lyon Real Estate’s midtown Sacramento office and is recognized as a top producer. She is also a Life Member of the Master’s Club, an honor bestowed by the Sacramento Board of REALTORS , and ranks in the top 1% of all the agents at Lyon Real Estate.
CA BRE License #00697006
Put your fears about bad credit aside. Just because you have bad credit, filed bankruptcy or gone through a foreclosure does NOT mean you cannot buy a home. You most certainly can buy a home with bad credit. But you re going to pay more than a borrower who has sparkling credit.
The Waiting Period After Foreclosure / Bankruptcy
- For better rates with a conforming loan. the wait is four years after filing bankruptcy or a short sale .
- FHA guidelines are two years after a foreclosure. which means you could qualify for as little as 3.5% down. One year after a qualifying short sale. Non-qualifying is 3 years for FHA.
- Hard-money lenders will often make loans six months after filing bankruptcy or a foreclosure, but will a require 20 to 35% down payment. The interest rate will be very high and the loan terms are not as favorable; many will contain prepayment penalties and be adjustable.
How to Improve Your Qualification For a Conforming Loan
- Save a down payment of at least 10%.
- Avoid late payments and continue to pay your bills on time; do not fall behind.
How FICO Scores Affect Interest Rates
I spoke to Evelyne Jamet at Vitek Mortgage about the differences among FICO scores and how that relates to the interest rate borrowers are charged. The following numbers are in comparison to the interest rate a borrower with a 600 FICO score would pay who did not file bankruptcy or lost a previous home to foreclosure. This scenario assumes the borrower with bad credit is putting down 10% of the purchase price in cash and met the seasoning requirements above.
- FICO Score of 600 to 640: 1.625% over prevailing rate. This means if a borrower with good credit is paying 5.875%, your interest rate would be 7.5%.
A $200,000 amortized loan at 7.5% would give you a monthly payment of $1,398.
A $200,000 amortized loan at 8.75% would give you a monthly payment of $1,573.
A $200,000 amortized loan at 9.3% would give you a monthly payment of $1,653.
A $200,000 amortized loan at 9.75% would give you a monthly payment of $1,718.
A $200,000 amortized loan at 12 % would give you a monthly payment of $2,057.
Comparing Identical FICOs Against Borrowers With No Foreclosure or Bankruptcy
A borrower without a bankruptcy or foreclosure with a 600 FICO would receive an interest rate of 5.875% (based on the above) and pay a monthly payment of $1183 on a $200,000 amortized loan. You can see that filing bankruptcy or having a foreclosure on your record, even with a FICO score of 600, results in an increase in a mortgage payment of $215 over that of a borrower without a bankruptcy or foreclosure. However, that difference in payment will let you buy a home.
Alternative to Bank-Financing
Borrowers who are not satisfied with the rate offered by a conforming lender might want to look at buying a home with seller financing. Land contracts offer a viable alternative. Typically, seller financing offers:
You will want to check with your lender every year or so to find out if you qualify for a refinance at a lower rate .
DISCLOSURE: Vitek Mortgage is a preferred vendor for my employing brokerage and enjoys an affiliated relationship with Lyon Real Estate. Evelyne Jamet handles loans only in New Mexico, Colorado and California and suggests borrowers with bad credit contact a local FHA mortgage broker .
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.