With the recent mortgage banking implosion, many people are under the misguided conception that the bad credit mortgage or “sub-prime” mortgage is dead. The bad credit mortgage or sub-prime mortgage is alive and well, it is just masquerading under a different name that most people don’t associate with a bad credit mortgage. They presently go by two distinct names:
1. FHA Mortgage
2. USDA Rural Housing/Farmer’s Home Loan
What most people don’t know is that despite what the main stream media tells you, the original bad credit mortgage and sub-prime mortgage was originally developed by the federal government. It is the FHA mortgage. What am I talking about? To give you an example, before the recent implosion, there was a joke in the mortgage industry that if you could fog a mirror and had a pulse, you could get an FHA mortgage with only $500 to your name if the deal was structured properly.
While I was never personally big on FHA loans, I did originate a few of them in my 10 years in mortgage banking. One of them was for a client with a 489 credit score. Amazing, but true. In all fairness, the file was over documented and was as thick as the yellow pages but at that time, all FHA cared about was verifying income, employment, residence payment history and no late payments more than 30 days late in the prior 12 months. Using the Nehemiah Down Payment Assistance Program and by structuring the deal properly, you could literally get someone into a home for about $500. FHA loans were the original 100% financing, no money down, bad credit mortgage loans.
Watching the media frenzy during the mortgage implosion, I was often stunned by how much attention was given to “sub-prime” loans that actually had higher underwriting standards than FHA loans. It apparently finally caught up with FHA loans because about 18 months ago, for the first time ever, they imposed a minimum credit score requirement of 580, still making them the king of bad credit mortgage loans. In March of 2009, they again changed the guideline to reflect that a minimum credit score of 620 was now required. This higher credit score requirement certainly tightened things up a little bit, but a 620 credit score is still a sub-prime mortgage or bad credit mortgage.
Another lesser known bad credit mortgage loan or post bankruptcy mortgage loan available is the USDA Rural Housing/Farmer’s Home Loan. It offers 100% financing to qualified candidates in qualifying areas. It isn’t available in all areas as its purpose is to promote housing in what the federal government deems as rural areas. It too is a bad credit mortgage or sub-prime mortgage.
With a comprehensive credit restoration plan, a 620 credit score is easily obtained. So, the key becomes the seasoning. Unfortunately, most people associate a bankruptcy with the end of the road and make no plans to develop credit after bankruptcy filings. Therefore, they struggle trying to get a mortgage after bankruptcy. One of the keys is to reestablish your credit as soon as possible once your bankruptcy has been discharged. A good way to do this is to get an after bankruptcy credit card.
In time, unless there is massive federal governmental interference, the capital markets will recover and an array of bad credit mortgage loans and sub-prime loans will be made available.
For the time being, the easiest and least expensive after bankruptcy mortgage are federally insured loans made available via FHA and the USDA. The caveat here is that they will require after bankruptcy credit to be established and a minimum two year seasoning requirement from the date of discharge before lending again.
So, if you have filed bankruptcy, the first thing you need to do to get on the road to recovery is to develop a comprehensive long term credit restoration program.
If you are looking for more information on bad credit loans you may want to check out this article. If you are looking to refinance your mortgage an would like more information on the Cost to Refinance a Mortgage, you might want to check out this article.
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