Since credit scores are so important in the loan approval process, is it possible to get a home loan with less than stellar credit?

There are certain factors in the loan approval process that are hard to rise above, then there are factors that can be over come by compensating positive factors.  Poor credit is generally an issue that is hard to overcome.  However, FHA loans are available for borrowers who have less than perfect credit but otherwise meet the general requirements for a home loan.  The real advantage of these loans is that the interest rates are competitive with conventional loans and the down payment requirement is less than 5%.  In addition the prospects of compensating factors should not be ignored.  An exaggerated example may be, if a client has some slow credit but had saved to put up a down payment of 25%.  That large down payment would be a compensating factor.  A potential home loan applicant can use the mortgage calculators to see what compensating factors they may possess.  For instance if a user was calculating the qualifying ratios in a comprehensive mortgage calculator and the debt to income ratios were significantly below the 28/36 guidelines, this is a compensating factor.  If the mortgage calculator indicates the user is requesting a home loan with a down payment in excess of 5% this may be a compensating factor.

This entry was posted on Thursday, December 11th, 2008 at 6:28 am and is filed under Mortgage FAQs. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.