If you have bad credit, you have probably been turned away by a bank if you applied for a home loan. You may think that owning a home is impossible. However, there are a number of programs that can help you qualify for a home loan. The best first step is to ditch the bank and find a company that specializes in helping individuals and families figure out Arizona home loan for bad credit. A good first stop is a mortgage broker. Unlike a bank, the broker does not actually loan out the money for a home loan. Instead he or she shops different banks to help you find the best loan for your purchase and credit situation. This allows more flexibility in terms of the types of loans that the broker can find as well as lenders. A mortgage broker or mortgage company can act as your intermediary and usually get you better loans and better terms than you could get by going straight to a bank, especially if you have bad credit.

One loan type your broker will recommend is an FHA loan. An FHA loan is a program for Arizona home mortgages for bad credit borrowers. If you have bad credit, an FHA loan may be a good option for you to secure a home loan. An FHA loan is a government backed loan. Each month you pay extra insurance against default. The loan is secured by the Federal government so lenders are more likely to give them to borrowers with bad credit. In order to qualify for an FHA loan you will need to have 3.5% of the purchase price to put down. You will also pay extra for monthly mortgage insurance which can vary based on the amount of your loan. For many bad credit borrowers an FHA loan is a good path for homeownership.

The Federal Housing Administration does not give out loans. In order to obtain an FHA loan you will need to find a mortgage broker, bank, or investment firm that is certified to give out FHA loans. The FHA provides mortgage insurance to the lender on their loans. This mortgage protects the lenders from losses due to homeowner default. The lenders bear less risk because the FHA will pay an insurance claim to the lender if the homeowner defaults on their loan the lender has to foreclose on the property. This insurance makes and FHA loan a good program for bad credit borrowers because a lender is more likely to make a loan to a borrower with bad credit if they have FHA insurance.

The FHA was established in 1934 during the Great Depression. The goal of the agency is to help all Americans purchase homes and to help stimulate the housing economy. In the 1940s the FHA helped finance home loans for veterans and military families. By the 1980s the FHA moved into falling home prices and made it possible for home buyers to get financing during needed during the recession. By 2001 homeownership in the United States was at a record high. The FHA has insured over 34 million mortgages since its inception.

As illustrated above, the FHA has been in the home mortgage business for over 80 years. It is completely self-funding and does not require tax payer money or government bail outs. This makes it ideal for Arizona home mortgages for bad credit because lenders know and trust the agency. In addition, there are no surprises in terms of interest rates like there are in adjustable rate mortgages. FHA loans offer fixed interest rates for 15 to 30 years. However, keep in mind that you will pay mortgage insurance each month. The amount of this payment varies depending on the amount of your loan. You will pay this insurance until your loan to value ratio is less than 80%. Meaning, you will have an extra monthly payment until you have paid off 20% of your loan. If the value of your home increases dramatically you can look into refinancing to eliminate this monthly payment. In addition, there are certain mortgage arrangements that can be made during your real estate negotiations to have the seller pay a portion of this insurance upfront.

Talk with a mortgage broker to determine if an FHA home loan is a good option for you.

The Federal Housing Administration has helped many homeowners obtain loans they otherwise may not qualify for. A mortgage broker can walk you through the process of qualify for an FHA loan as well as describe any funds you may need. Call a broker today to take the next steps to purchasing a home.

Dennis Dahlberg
Broker/RI/CEO/MLO