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Buying a home is exciting, but it can also be scary or even a little intimidating. Although Experian® reports the average credit score in the United States is 714, the reality is a large percentage of Americans have credit scores that fall below that number, making it difficult for them to qualify for conventional home loans. Luckily, other options are available for individuals with bad credit who want to achieve the American dream of homeownership. 

An FHA loan is a popular financing option for first-time buyers, buyers who may not have a large down payment and buyers with less-than-perfect credit. Getting approved for an FHA loan with bad credit may be more realistic than you might think. 

What is an FHA loan?

An FHA loan is a mortgage loan insured by the Federal Housing Administration. They typically have fewer restrictions than conventional loans, making it easier for borrowers with low credit scores to get approved. 

FHA mortgage insurance protects lenders against losses, so they can afford to offer home loans to borrowers with lower credit scores and individuals with small down payments.

Can I get an FHA loan with bad credit?

If you have bad credit, you may think homeownership is out of the question, but that may not be the case. Over the years, the Federal Housing Administration has loosened the guidelines of its loan program to allow more borrowers to meet the requirements necessary to qualify for a home loan. Even those who’ve experienced bankruptcy or foreclosure may qualify for an FHA loan. 

A conventional home loan typically requires a credit score of 620 or higher for approval. So many borrowers with bad credit are drawn to FHA loans because the approval rating is higher for those with lower credit scores. There are no guarantees, but FHA loans can make the dream of homeownership a reality for those with bad credit.

What are the benefits of an FHA loan?

FHA loans allow borrowers to pay smaller down payments, allowing them to reserve funds for other expenses related to homeownership. 

Other benefits of FHA loans include:

• Flexible co-signer rules
• Easier qualification requirements
• Option to finance some closing costs
• Higher debt-to-income ratio (DTI)
• Looser rules on gift funds (i.e., who can give you money for a down payment)
• More affordable interest rates

While these loans are very popular, they aren’t for everybody, says Justin Pritchard of The Balance. He cites not being ready to take on a mortgage, paying mortgage insurance and higher up-front costs as a few drawbacks of using an FHA loan. 

Requirements for an FHA loan with bad credit

Generally speaking, bad credit is a score of anything less than 500, but that answer varies depending on the lender. Many lenders won’t extend loans to borrowers with scores lower than 500. Even with a score of 500, the loan approval may come with additional requirements. 

Down payment requirements

How much of a down payment you’ll need to purchase a home with an FHA loan depends on your credit score. Borrowers with a FICO® score of at least 580 may qualify for a 3.5 percent down payment. Borrowers with a FICO score between 500 and 579 will be required to provide a down payment of 10 percent. 

Additional requirements

Borrowers will also need proof of income and steady employment. 

How to apply for an FHA loan with bad credit

If you want to pursue an FHA loan, you should first find an FHA-approved lender. Most banks and mortgage companies offer FHA loans. If you don’t already have a lending institution in mind, you can do some online research to find some FHA-approved lenders. 

After you select the lender you want to use, you’ll submit a loan application. You can apply online, over the phone or in person with a loan officer. Whichever way you choose, there are some things you’ll want to have handy to make the process smoother. 

Here are just a few important pieces of information you’ll need: 

• Complete names of borrowers plus any co-borrowers
• Current address
• Social Security number
• Employer information along with salary information (complete with pay stubs)
• Credit report with information on all open loans and real estate
• Tax returns (for at least two years)
• Bank account statements
• Other information as requested by your lender

Once you submit your application, the lender will let you know the next steps regarding approval. If you’re approved for a loan, the lender will provide you with the loan estimate, which will disclose information about the loan interest rate, loan terms, monthly mortgage payment and closing costs. 

Even with bad credit, it’s a good idea to shop around to make sure you get the best rate you can get. 

Refinancing an FHA loan with bad credit

Over time, you may notice that mortgage rates decrease, and you may want to take advantage of the opportunity to lower your monthly payment, change your loan terms or get some extra cash to pay for some things you need. One option is to refinance your FHA loan. 

With very similar guidelines to FHA loans, FHA refinancing options exist, and you may qualify even if you have a low credit score. Check with your preferred lender to see if you meet the requirements for refinancing. 

First-time homebuyers and FHA loans

If you’re a first-time homebuyer, it’s not uncommon to be overwhelmed with the process. FHA loans are a great option for first-time buyers, especially those with bad credit. The below-average mortgage rates and flexible lending rules make it easier for first-time buyers to get approved for loans and get into their first home.

What to know about FHA loans and bankruptcy

Borrowers who have a  bankruptcy on their credit report may think homeownership isn’t an option, but that may not be true. Though bankruptcy can stay on your credit report for seven to 10 years, you may still qualify for an FHA loan. 

Chapter 7

According to FHA loan guidelines, a borrower may be able to obtain an FHA loan just 12 months after Chapter 7 bankruptcy has been discharged. The borrower must prove that the bankruptcy was caused by circumstances beyond their control.  Otherwise, borrowers must wait two years after discharge to qualify for an FHA loan.

Chapter 13

Qualifying for an FHA loan after Chapter 13 bankruptcy might be easier than after Chapter 7 bankruptcy. The borrower will need to be at least one year into the repayment plan to apply for an FHA loan and be current. Additionally, your bankruptcy attorney must give written permission for you to take out a new loan. 

Repairing your credit

If you have bad credit, you may think you’re stuck with it—at least for now. But you have options. You can work to improve your credit yourself or you could reach out to a credit repair company like CreditRepair.com. The credit advisors at CreditRepair.com can work with you to remove inaccurate items from your credit report, potentially improving your credit score.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

The post Getting approved for an FHA loan with bad credit appeared first on CreditRepair.com.

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When applying for a personal loan, there are a few things to take into consideration before submitting your application, such as your approval odds. If the odds aren’t looking like they’ll work out in your favor, you may want to consider asking a cosigner to apply alongside you.

A cosigner could help increase your chances of approval, especially if your credit score isn’t looking too hot. Learn more about how to get a personal loan with a cosigner and what it may mean for your approval odds.

What is a cosigned personal loan?

A cosigned personal loan is a loan you apply for alongside someone else (a relative, trusted friend or mentor) who consents to paying the loan back with the primary borrower (you). A cosigner who has good credit, financials and a positive lending history may be able to help increase your chances of loan approval.

Often, this means they take responsibility for paying partially or in full any payments you can’t make on your own.

Joint personal loans and co-borrowers

A joint personal loan (loans awarded to two or more people) requires a co-borrower to apply alongside you who will also have responsibility for the loan.

The major difference between a co-borrower and a cosigner is that a cosigner applies with you to certify that they will take on payments only if you’re unable to. A co-borrower, in contrast, must apply for the loan alongside you and has equal responsibility to pay back the joint personal loan. They can make payments just like you do.

Should you get a personal loan with a cosigner?

You could consider getting a personal loan with a cosigner if you want to benefit from a trusted associate’s good credit score and if you trust them to help you if you can’t make the loan payments. Having a cosigner is not required to apply for a personal loan. If your credit score and history is in good shape and there’s nothing in your financial background that may signify you wouldn’t be a responsible borrower, you should be able to apply alone.

The only time you’ll be required to have someone apply for a loan with you is if you’re applying for a joint personal loan, where you’ll need a co-borrower to complete the application.

When you should consider a cosigner

Though having a cosigner isn’t required to apply for a loan, it may be worthwhile to consider one if you have had a troubled credit or financial history. The following are situations where a cosigner can increase your loan approval odds.

Bad credit or lending history

Lenders look at your credit history as an indicator of whether or not you’re a responsible borrower and if you’re able to make payments on time. If you have a low credit score (typically anything under 670) or have something on your credit report that would indicate you’ve had trouble making past payments, you may want to consider a cosigner.

Having a cosigner with a high credit score can help your approval odds by signaling to lenders that, together with your cosigner, you have a positive borrowing history. Be sure to let your cosigner know that a loan application often requires a credit inquiry that may temporarily drop their credit score.

Low monthly income

A low income may signal to lenders that you don’t have the means to make your required payments each month, which could hurt your approval chances.

Collateral assistance

Collateral is something that a lender holds for you to secure your payment and make sure you will make payments in full. This can include things like the deed to your home or car, fine art or jewelry you own, or even your paycheck.

Collateral has become less common for lenders, but if the loan you’re applying for does need collateral that you don’t have, a cosigner could be able to help. Be sure your cosigner understands that the collateral they put up on your behalf could end up being seized by the lender in case you’re unable to make payments.

How to find a cosigner for a personal loan

Once you’ve decided to apply for a loan with a cosigner, it comes time to find the right person to ask to cosign. Read on for how to find the best cosigner to increase your loan approval chances.

It’s important to note that no loan is ever guaranteed to get approved, no matter your or your cosigner’s credit score and financial history.

Ask someone trustworthy and financially secure

Ideally, your cosigner is someone you know personally and have a mutually trusting relationship with. Cosigning does involve some sort of financial commitment, so consider asking someone with whom you have a strong enough relationship to survive a financial risk—such as a close family member. This could also be a close friend or coworker.

Since your cosigner is signing on to improve your approval chances, you should look for someone with a high a credit score, comfortable monthly income and low existing personal debt. Though there are no rules about what your cosigner’s credit score, financial history or income should look like, any score in the “very good” to “excellent” credit range of 740 to 800+ can show lenders that they’re a responsible borrower.

Have a plan to pay your loan

Once you’ve identified someone who would be a good fit as a cosigner for your loan, you should consider putting together a fact sheet with everything your cosigner should know before they agree to cosign for you. Ideally, this should include how much the loan is (including the interest rate), what you’ll be using it the loan for and what your repayment strategy is.

You should also have an open, honest discussion about the risks of cosigning and what happens if you’re unable to make a payment. Will your cosigner pay on the loan and you pay them back? Will they cover a certain amount of payments before you take them on?

Being upfront about what you need out of a cosigner, even if it’s just their good credit score, can help avoid some awkward or frustrating conversations down the road. It also lets your cosigner know exactly what they’re responsible for so they can decide whether or not they can take on that responsibility.

When it comes to taking out a loan, it’s always important to do your research and be prepared. Whether or not this means having a cosigner for your personal loan is up to you and your exact financial situation. However, be sure to prioritize your financial goals in getting your credit in good shape before applying.

Reviewed by Upuia Sagapolu, Credit Consultant at CreditRepair.com.

Upuia Sagapolu has worked in credit repair for over 17 years. She has a great wealth of knowledge and wisdom concerning the credit repair process. Upuia champions herself as a strong advocate assisting all hard-working Americans towards increasing their credit scores and achieving their financial goals. She is a firm believer that having great credit is essential to a person’s credit journey, which is their financial power that leads to their financial freedom.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

The post How to get a personal loan with a cosigner: what to know first appeared first on CreditRepair.com.

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Although transferring a loan to another person is not common, there are exceptions, depending on the type of loan.

If you’re dealing with debt, you may at some point question whether or not you can transfer a loan to someone else. You may want to transfer your loan to a family member who’s come into money and offered to take it over. Or, you may consider taking over your child’s loan to help them out.

There are numerous reasons someone may want to transfer a loan, but, unfortunately, it’s not quite as simple as it seems. In this article, we’ll go over different types of loans and what it would take to transfer them to another person.

Transferring personal loans

Personal loans (also known as installment loans or consumer loans) can’t be transferred to another person. If you took out a personal loan, you were given the cash up front, an interest rate and loan terms based on your credit score. Unfortunately, most lenders won’t allow a personal loan to be transferred because moving the loan to another person could be risky for the lender. 

But, if you have a cosigner or guarantor on the loan contract, they share the responsibility of the loan. (This also means that if you default on the loan, your lender will reach out to your cosigner for payments). This is the closest you can come to transferring a personal loan to another person. 

Of course, you can potentially transfer your loan to a credit card, but that’s a separate issue. Credit cards usually have much higher interest rates than personal loans, so only take this route if you have a promotional zero interest period on balance transfers. 

Transferring car loans

Whether you’re trying to sell your car or transfer a loan that has become difficult to maintain, the good news is that you can transfer a car loan—in certain circumstances. 

How do car loan transfers work?

Car loan transfers can be complicated because each loan has its own terms. You can’t transfer the loan directly—instead, the new borrower will have to apply and be approved by the lender to take over your existing loan. 

Typically, the process looks like this:

1. Review the contract

First, you’ll have to read your current contract to see if a loan transfer is even possible. (Watch out for any mention of fees for transferring the loan!) Check for what details qualified you for the loan, such as your credit score and income level. In most cases, the lender will only allow you to transfer your auto loan to someone with similar or better qualifications. 

2. New lender applies

Once you determine that you can (and want to) move forward with the loan transfer, the next step is having the new borrower apply to take over your existing loan. Most lenders want to see someone with a credit score and history similar to yours.

Keep in mind that the borrower will be taking over your exact loan. This means that the time frame on the loan doesn’t start over. If you had 12 months left on the auto loan, the new borrower will still have 12 months of payments. 

Some lenders won’t allow a loan transfer, but they may allow you to add a new cosigner to the existing loan.

3. Title modification

If the loan transfer goes through, you and the new borrower will need to visit the DMV and change the title to the new owner. 

If you can’t transfer your car loan, try refinancing

Unfortunately, most of the time car transfers can be difficult to get approved for. If you can’t transfer your loan to another person, you can also refinance your loan yourself. When  refinancing, you can potentially:

• Secure a lower interest rate, bringing down your monthly payments
• Extend your loan period

You can refinance with your existing lender, but it’s more common to transfer the existing loan to a new lender. Heads up: you have to apply for refinancing and typically need solid credit to be approved. And you’ll only get better loan terms on the refinance if your credit score has improved since you took out the initial car loan. 

Transferring a mortgage loan

The only type of mortgage that’s transferable is called an assumable mortgage loan. (Both FHA and VA loans are assumable loans.)  Assumable loans have nothing in the contract that prevents a person from transferring the loan to a new borrower. 

The good news is that you still have options even if you don’t have an assumable mortgage. Like car loans, you can potentially refinance your mortgage (instead of transferring it) if you can’t afford the payments. 

How does an assumable mortgage work?

With an assumable mortgage, the new borrower will need to apply and qualify for the mortgage. A lender gave you the mortgage based on your credit factors (credit score, income, debt levels, etc.). So, the only incentive for lenders to approve a mortgage transfer is if it’s going to a borrower who can match or exceed your credit, income, and isn’t an additional risk. 

For the new borrower, applying for a mortgage transfer is similar to applying for a conventional mortgage. You’ll have to request the transfer with your lender, who’ll help the new borrower start the application process. It’s likely that you—the original lender—will have to pay a fee for the transfer. 

Avoid unofficial transfers

If you haven’t been approved for a loan transfer, you might be considering an unofficial transfer. This is where you come up with an agreement that the mortgage remains in your name and the new borrower just makes the monthly mortgage payment for you.

This can be risky for a few different reasons:

• Most contracts explicitly state that unofficial transfers aren’t allowed. If your lender was to find out you had this arrangement, you could be in breach of your contract. There could be legal consequences for violating your mortgage contract.
• If the new borrower decides to stop paying you the money, you’ll have a big problem on your hands. First, the loan is still in your name, so the missed payments will impact your score. Secondly, kicking someone out of a property (squatter’s rights) is a process that can take months. Third, the lender will come after you for the missed payments since the loan is still technically yours. 
• If the new borrower stops making payments and you can’t afford to make up the difference, your home could be foreclosed on. If the housing market is down and the foreclosure sells the property for less than your outstanding mortgage balance, you could owe the lender the difference. 

Remember there are better and safer options to an unofficial transfer, such as refinancing or selling your home. 

Learn more about your loan options

When considering a loan transfer, the first step is to understand your specific loan and research your options. Even if a transfer isn’t possible, you almost always have other options available to you. 

It’s clear that no matter what kind of loan you have, your credit plays a prominent role in the process. Improving your credit today can help you with current and future loans. A strong credit score will help you secure lower interest rates, better loan terms and faster loan approvals. 

If you need help with your credit during this process, you can use credit repair services. CreditRepair.com can help you examine your credit history, file disputes for incorrect or false negative items and educate you on what it takes to maintain strong credit. Get help today! 

Reviewed by Melissa Collins, Credit Consultant at CreditRepair.com.

Melissa Collins is a CXRF Advocate who has been with the company since October 2018. Melissa started as an advisor in member services assisting members with general credit questions,  quickly moved to a position helping members with overdue balances. For the past year Melissa has been a part of the CXRF Team resolving escalated situations and creating a better member experience.

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

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