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Mortgage

How Much Does It Cost to Build a House?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Factors that dictate cost

While the average costs to build a house can give you a general idea of how much you’ll pay for a new build, it’s important to note that the costs of building any home can vary dramatically. Where you live, for example, can play a huge role in not only the costs of land but the price of the permits and fees you’ll need to cover.

Of course, there are other factors that will dictate how much you pay, from the type of home you select to what you choose to do inside. Other factors that can dictate the costs of your home include:

  • Your lot: The NAHB reports that the average price for a lot of land worked out to $4.20 per square foot in 2015 (the most recent data available), bringing the total for an average size lot (20,129 square feet) to $84,541.80. However, this cost can vary depending on the lot you buy, the size of the lot and the local real estate market where you buy.
  • Home size: The larger the home, the more construction costs you’ll encounter, says Frank Nieuwkoop, sales and marketing director of new-home builder Valecraft Homes Ltd. Larger homes also require more materials (more flooring, more lighting, more fixtures, etc.), he says, which can lead to higher costs in a hurry.
  • Upgrades: If you opt for fancy upgrades, you’ll pay more for a new home, says Nieuwkoop. Granite or marble, upgraded fixtures, and custom woodwork can make any home considerably more expensive. This is one area where you can also save on the costs of building, however. Where laminate countertops may cost just $10 per square foot installed, you’ll pay more like $60 to $120 per square foot for concrete or recycled glass, according to Consumer Reports. If you multiply those savings across all the rooms that need counters in your home (kitchen and baths), it’s easy to see how you could pay more or less depending on what you choose.
  • Home design: The design of the home can also play a factor in cost, says Nieuwkoop. If you build a home that is standard in design, you may pay less than if you build a custom home with unique design or special features. If you design a truly custom home, you may also need to hire an architect to draft a design. Hiring an architect can add another 15 or even 20 percent of costs to your total project.
  • Siding: What you choose to cover the exterior of your home can play a big role in your total price. If you choose a custom stone exterior, you may pay more than you would if you choose vinyl siding instead.
  • Landscaping: Will you opt for an elaborate outdoor landscaping scheme or some simple greenery? Your landscaping choices will play a role in the costs of your home as well as ongoing outdoor maintenance. You’ll also pay more for a fenced yard.

Building vs. buying

Building a home comes with pros and cons that are entirely different from the factors that lead people to purchase an existing home. Before you choose to build or shop among homes already in your area, make sure to consider the advantages and disadvantages of both scenarios.

Pros of building your own home

  • Less competition: According to the National Association of Realtors, existing homes stayed on the market for an average of 34 days nationwide before being sold in October 2017. In “hot areas” of the country such as San Francisco, San Diego, Boston, and San Jose, however, houses — especially those in an affordable price range — tend to go under contract in less than a week, it notes. By selecting your own lot and building a home, you can avoid stiff competition for existing properties and still get the home you want.
  • Everything is new: “Many people love the idea that everything in their house will be brand new when they build,” says Nieuwkoop. Having new fixtures, a new roof, new appliances and a new HVAC system may also mean you’ll have fewer repair bills during the first few years of homeownership.
  • Choose the location of your home: Building a new home on a lot you choose puts you in the unique position of selecting exactly where you’ll live. This can be advantageous if you hope to live near work or near public transportation, or if you want a lot with a certain type of view. “Do you want to back up to a lake or woods?” asks Nieuwkoop. “When you build, you get to decide.”
  • Select your own floor plan and finishes: Whether you build a custom home or select a floor plan through a builder, you get to choose how your new home is set up — including your floor plan. You may even be able to select your own finishes including your paint color, countertops, flooring and cabinets.

Cons of building your own house

  • Moving delays: Building a home often means longer delays when it comes to moving, says Nieuwkoop. “Building a home can take as little as two months all the way up to a year,” he says. If you want to move quickly, this can be a deal-breaker.
  • Building surprises: Especially if you design a custom home, you may not know exactly how the floor plan flows until your home is already built, notes the expert. “With a custom home especially, you may end up with something different than you envisioned.” Fortunately, this isn’t typically a problem with larger builders and developers since they often have model homes you can walk through, he says.
  • Pricing surprises: With custom homes especially, pricing can easily surge — especially if you make changes as the plan moves along, says Nieuwkoop. Plus, there are added costs that come with building that many people forget. Adding window blinds and treatments can add up, as can new décor, shelving and other interior fixtures that don’t come in the home price. Builders rarely put a fence in the yard, so that’s another expense to consider if you want one.
  • Less negotiation power: You may be able to negotiate the price on an existing home if a buyer is motivated to sell, but there may be less wiggle room on the price of a new home.
  • Construction traffic: If you’re building in a new neighborhood, you may deal with ongoing construction traffic for months or even years.

Pros of buying an existing home

  • Save money with existing features: Existing homes tend to have a lot of additions and upgrades made already, says Nieuwkoop. You may already have mini blinds, a privacy fence and appliances, for example, which can help you save money.
  • Move in quicker: “Although it can take a few months to close on an existing home and be able to move in, the timeline until move day is still faster with an existing home,” says Nieuwkoop. If you need to move quickly, you can typically do so faster if you buy instead of build.
  • Property maturity: Existing homes tend to have more mature trees and landscaping, which could be advantageous if you don’t like the idea of growing new grass on your own.
  • No construction zone: If you’re buying a home in a mature neighborhood, you may not have to deal with ongoing construction issues like you would with a new build in a new neighborhood.

Cons of buying an existing home

  • Lack of customization: You don’t get to pick out the floor plan or fixtures when you buy an existing home. You get exactly what is there already, which may or may not be what you want.
  • Costs to upgrade: If you buy an existing home that is out-of-date, you may need to spend considerable sums of money to make important updates or replace out-of-date fixtures.
  • Hidden problems: Existing homes may have problems you don’t see, says Nieuwkoop, adding that home inspectors don’t always find every issue. “If there was a water leak in the home and the seller replaced the drywall without actually fixing the issue, you may not find out you need costly repairs until after you move in.”

Who it’s best for

According to Nieuwkoop, building is best for individuals and couples who are very detailed and know exactly what they want. Building is also ideal for people who don’t care as much about cost as long as they get a brand-new home and the ability to pick and choose every finish and feature.

“Building is also best for buyers who are patient and willing to endure some bumps along the road,” says the builder. “If you’re high stress and don’t want to deal with any issues, you may be better off buying a newer existing home.”

5 steps to building a house

While the process of building a house can vary slightly depending on whether you design your own custom home or work with a developer, the main steps to completing the process are the same. Fortunately, Nieuwkoop helped us outline the five steps to building a house from beginning to end.

Step 1: Create a budget.

Before you decide to build or buy a home, it’s crucial to know how much you can afford to spend. The best way to come up with a housing budget is to see a mortgage broker or apply for a mortgage online, to see how much you can afford to borrow. You should also get pre-approved for a mortgage, says Nieuwkoop. That way, you’ll be ready to work with a builder when you decide what you want. You can compare mortgage offers online with LendingTree, MagnifyMoney’s parent company.

Step 2: Purchase land or select a lot.

Once you know what you can afford (house and land included), it’s time to find a lot in an existing community or buy land you plan to build on. Keep in mind that the price of the land you buy will need to be included in your mortgage amount unless you plan to buy the land in cash separately. If you’re choosing a piece of land that hasn’t been developed, you should also ask your builder about the costs of adding utilities to the property, cutting down trees, or leveling the land.

If you’re buying from a developer or builder who is overseeing the construction of a new neighborhood, it’s possible the price of your chosen lot will be built into the price of the floor plan and home you select, says Nieuwkoop. Either way, now is the time to talk through land costs with a builder and decide where you want your new home to be.

Step 3: Develop floor plans and designs.

If you’re working with a builder, chances are good they’ll offer a range of floor plans and new home designs you can choose from. If you’re building a custom home, on the other hand, you’ll likely need to hire an architect to create a realistic housing design that encompasses all the features you want.

Either way, you need to nail down your ideal floor plan and design at this stage. Decide how many bedrooms and bathrooms you want, along with the general layout of your home. From there, you can select or design a housing plan that fits your budget and style.

Step 4: Select finishes, features, and appliances.

Once you’ve chosen the layout of your home, you still need to choose what goes inside. Work with your builder to decide on the interior finishes in your home, from the cabinets in your kitchen to your light fixtures, plumbing fixtures, flooring, and paint colors.

Step 5: Watch your home being built.

Once your home is commissioned and ready to be built, you can watch as the process takes place over the weeks and months. Nieuwkoop says that, ideally, your builder will let you walk through the home during various stages of the process. By walking through, you may be able to discover and point out issues that need to be fixed, such as incorrect fixtures or design problems.

How to finance the build

According to mortgage advisor Jeremy Schachter of Pinnacle Capital Mortgage, the process for financing a new build is similar to the process of buying an existing home.

When you build a home, it’s crucial to get pre-qualified with a bank or lender. During this process, the lender will take a look at your credit score, income, assets and debts, then use those factors to determine how much you can borrow.

The biggest difference with a new build, says Schachter, is that you’ll likely need to get pre-approved for a mortgage once and then start a portion of the process over again. “You’ll need to submit financial statements, a credit report, and pay stubs to get approved to build a house, but you’ll likely need to resubmit all this information again if the process takes several months,” he says. Schachter was clear that the final home closing doesn’t take place until the house is completed, and that this is when you’ll start making mortgage payments.

Fortunately, Schachter says, many lenders will let you lock in the interest rate on your home loan for up to a year when you’re building a home. But you should always check and ask about your APR to make sure you’re not stuck with a higher interest rate if your new build takes several months and rates surge during that time, he says.

What type of home loans can you use?

Schachter notes that consumers can use any type of home loan to build a property that they could use to buy a traditional home. For example:

  • VA loans: To qualify for a VA loan, you must have satisfactory credit, sufficient income, and a valid Certificate of Eligibility (COE) based on your level of service. You must also plan to live in the home full-time.
  • FHA loans: You can apply for an FHA construction loan to finance a new build. To qualify for an FHA loan, you’ll need at least 3.5 percent as a down payment, a credit score of 580 or higher, and proof of income. You may qualify for an FHA loan with a credit score lower than 580, but you’ll need to make a larger down payment. Lenders will also look at your debt-to-income ratio — a figure determined by taking all your debt payments and dividing them by your gross monthly income. If you have $3,000 in bills each month and your gross monthly income is $5,000, your debt-to-income ratio is 60 percent. Generally speaking, lenders want you to keep your debt-to-income ratio under 43 percent, including all housing payments.
  • Conventional home loan: Requirements for a conventional mortgage can vary, although you typically need a good credit score (FICO score of about 740 or higher) to qualify for a loan with the best APR. Lenders also look at your employment history, income and debt-to-income ratio.
  • Construction loans: Schachter notes that individuals building a custom home may need to get a special “construction loan from a lender or bank.” These loans cover the initial costs of building a house, including the lot, building materials and architect fees. Schachter notes that construction loans are typically short-term loans with variable interest rates that are good for less than a year. Ultimately, construction loans are converted to permanent home loans once the construction process is complete.
Holly Johnson
Holly Johnson |

Holly Johnson is a writer at MagnifyMoney. You can email Holly here

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Mortgage

A Guide to Home Loans for Bad Credit

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Getting a mortgage with bad credit isn’t easy. Banks and credit unions became ultraconservative with mortgage lending following the 2008 housing market crash. However, these days, tighter lending standards don’t have to force you out of the mortgage market. If you have a stable income, you may qualify for a mortgage, even with bad credit. We’ll explain the best home loans for people with bad credit, offer tips for cleaning up your credit histories and point out scams to avoid.

Quick guide to checking your credit score

If you’re just starting to shop for home mortgages, it pays to know if banks think you have bad credit or not. Here’s how FICO, the main credit score provider in the U.S., breaks down credit scores:

  • 800-plus: Exceptional
  • 740-799: Very good
  • 670-739: Good
  • 580-699: Fair
  • 579 and lower: Poor

A credit score above 740 is optimal for finding the best mortgages, but you can often secure a mortgage with a much lower score. You might find an FHA mortgage with a credit score as low as 500 (albeit with a 10 percent down payment rather than 3.5 percent rate for scores above 580), but a credit score of around 650 gives you a decent chance of qualifying for a home mortgage. Getting a mortgage with a truly bad credit score will be difficult, and improving your credit to “fair” status could make it much easier.

Where can you check your credit score? Banks and credit unions use the FICO Scores 2, 4 and 5. These are not the same scores you will find through a free credit scoring site. Unfortunately, we haven’t found a free option for checking your FICO Scores 2, 4 and 5. The best option for checking these is checking them on MyFICO, which costs $59.85.

If you don’t want to pay for a credit score, consider using a free scoring site. But don’t put too much stock in the number it offers. It may overestimate your credit score (for mortgage shopping), especially if you’ve paid off debt in collections recently, and some free scores don’t use the 300-850 scale FICO often uses. Instead, focus on the information about what’s helping and hurting your credit score, if the tool offers those insights, and use that knowledge to make improvements where you can.

You can get a free credit score through our parent company LendingTree.

Home loan programs for people with bad credit

FHA loans

FHA Loan Details

Credit score required

500, but banks have minimum underwriting
standards

Down payment required

Credit score between 500-579: 10 percent
Credit score above 580: 3.5 percent

Upfront financing fee

1.75 percent, which can be financed

Mortgage insurance

0.45 to 1.05 percent

Mortgage limits

Generally, $275,665 for single-family units, but it
varies by location and you should check the limits in your area

Fine print

Mortgage insurance premiums are paid for the life of the loan,
except when putting 10 percent or more down. If your down payment is
less than 20 percent but 10 percent or more, you must have
mortgage insurance for 11 years.

Quick take

If you have bad credit, an FHA loan offers a more accessible mortgage. While credit standards vary by lender, you may qualify for the FHA loan with a credit score as low as 500. With a credit score above the 580 threshold, you may qualify for the 3.5 percent down payment.

Unfortunately, an FHA loan can be expensive because of mortgage insurance fees. In addition to paying ongoing mortgage premiums for the life of the loan, you’ll have to pay a 1.75 percent upfront financing fee.

Pros:

  • 3.5 percent down payments (for those above the 580 credit-score mark)
  • Credit scores as low a 500
  • Can buy up to four units

Cons:

  • 1.75 percent upfront mortgage premium
  • Ongoing mortgage insurance
  • Smaller loan limits

Where to get an FHA loan

You can use the comparison tool on LendingTree or Zillow to find offers from FHA-approved lenders in your area willing to work with people with bad credit. If an online search doesn’t yield the results you want, you may need to work directly with a mortgage broker who specializes in finding mortgages for people with bad credit. You can use a site like Find A Mortgage Broker or Angie’s List to find brokers in your community.

Be sure to check the National Multistate Lending System (NMLS) to see if your broker has had any regulatory action filed against them. Regulatory actions against the broker are red flags that indicate you may want to take your business elsewhere.

Fannie Mae HomeReady Mortgage

HomeReady Mortgage Details

Credit score required

A minimum requirement of 620 generally applies
to Fannie Mae products.

Down payment required

3 percent for credit scores above 680
(for single family homes). 25 percent for credit scores
between 620-680 (for single family homes).

Upfront financing fee

None

Mortgage insurance

0.125 to 3 percent

Mortgage limits

Generally, $424,100, though it varies by location

Fine print

You must earn less than the median income in
your ZIP code to qualify,
or buy a home in a low-income zip code.
You must take a homeowner’s education class to qualify for the mortgage,
mortgage insurance can be canceled when you reach a
loan-to-value ratio of 80 percent.

Quick take

If you’ve got a fair credit score but a big down payment, the Fannie Mae HomeReady mortgage is the best conventional mortgage for you. With a 620 credit score and a 25 percent down payment, you meet HomeReady eligibility requirements, and you’ll pay no mortgage insurance. Fannie Mae offers a 3 percent down payment option, but you need a credit score of at least 680.

HomeReady mortgages also allow for cosigners who won’t live at the address with you. That means a parent or grandparent with a high credit score could help you purchase the property by co-signing. If you can find a cosigner, you may qualify for the 3 percent down payment even if your credit score falls below 680.

Pros:

  • Can qualify with credit score as low as 620
  • A low 3 percent down payment if you have a 680 credit score
  • Down payment doesn’t have to come from personal funds
  • Mortgage insurance premiums are cancellable
  • Non-occupant cosigners are permitted

Cons:

  • Up to 25 percent down payment required in some instances
  • Not all lenders offer Fannie Mae HomeReady mortgages, so you might struggle to find a bank with this offering.

Where to get a Fannie Mae HomeReady mortgage

Fannie Mae doesn’t publish a list of lenders who offer the HomeReady mortgage, so you will need to work with your lender specifically to see if they offer it. Most major banks and credit unions will be approved to underwrite Fannie Mae mortgages, but the specific product offering will vary by bank.

Consider using an online mortgage comparison engine including LendingTree or Zillow to compare offers in your area. However, once you find lenders that will work with you, you’ll have to ask them about the HomeReady mortgage, especially if you want to use the 3 percent down or co-signing feature.

The Housing and Urban Development office of housing counseling may also help you connect with lenders who offer the HomeReady Mortgage.

VA loans

VA Loan Details

Credit score required

Credit standards set by lender

Down payment required

None

Upfront financing fee

1.25 to 3.3 percent, which can be financed

Mortgage insurance

None

Mortgage limits

Generally, $424,100, though it varies by location

Fine print

Must obtain a certificate of eligibility
(for military members and spouses)
before applying for a VA loan

Quick take

For people with a military background, the VA loan is a top mortgage option. The upfront financing fee can be hefty, but it’s a good deal if you plan to live in the house for several years. That said, not all VA lenders work with buyers with bad credit, so you may struggle to find a reputable lender in your area.

Pros:

  • No down payment required
  • No mortgage insurance
  • No firm credit minimums
  • Can buy up to four unit multi-family property.

Cons:

  • Upfront funding fee
  • Not all lenders issue VA loans to borrowers with bad credit
  • Must buy home with the intent to occupy for at least 12 months

Where to get a VA loan

To take out a VA loan, you must get a certificate of eligibility (COE) through the Veterans Administration eBenefits platform. Once you get the COE, you can use the Consumer Finance Protection Bureau's interest rate data to learn about interest rates for VA loans.

To find a VA lender who works with bad-credit clients, you'll probably want to work with a mortgage broker. You can find mortgage brokers online or through your state's housing finance agency. Be sure that your broker has no regulatory action filed against them before you commit to working with them.

USDA loans

USDA Loan Details

Credit score required

As low as 580, but generally 640

Down payment required

None

Upfront financing fee

1 percent (can be financed)

Mortgage insurance

0.35 percent annually

Mortgage limits

No limits, but must meet standards of affordability based on moderate incomes

Fine print

You must meet income eligibility requirements,
and the property must be in a qualified rural area

Quick take

If you’re planning to buy in a rural area (and you may be surprised what qualifies, so check), a USDA loan offers a low cost, low money down loan. Technically, the absolute minimum credit score for this loan is 580, but most lenders won’t issue USDA loans to borrowers with scores below 640. USDA loans tend to be a better deal than FHA loans, but they may have higher costs compared to VA or conventional loans. If you’ve got fair credit, but you don’t have a big down payment, the USDA loan makes sense for you.

Pros:

  • No down payment
  • Only 1 percent upfront mortgage fee

Cons:

  • Ongoing financing fee cannot be canceled
  • Finding lenders who work with bad credit borrowers can be difficult
  • Must meet location and income criteria

Where to find USDA loans

If you meet the USDA eligibility requirements, you can start shopping for USDA loans through LendingTree, but you may not find many offers if you have a credit score below 640. If you can't easily find a lender, you'll want to work with an independent mortgage broker who will have insider access to multiple lenders in your city. You can find reputable brokers online through Find A Broker, Angie's List or the Better Business Bureau (search for mortgage brokers, your city). Before committing to a broker, check that your broker has no regulatory action filed against them.

Manufactured home loans for bad credit

Manufactured homes are houses constructed off-site, transported and anchored to a permanent foundation at a new home site. On average, manufactured homes cost 80 percent less than site-built single family homes, but taking out a mortgage for a manufactured home can be expensive, even if you have good credit. According to the Consumer Financial Protection Bureau, almost 68 percent of all loans for manufactured home purchases were considered higher priced mortgages. On top of already high rates, bad credit will drive your interest rate even higher. However, thanks to the lower upfront price, people with bad credit may have an easier time finding home financing for manufactured homes than for site-built homes.

FHA Title I loans (Chattel loans)

FHA Title I Loan Details

Credit score required

No credit score minimums, but
must meet ability to pay criteria

Down payment required

5 percent down for credit scores above 500,
otherwise 10 percent down

Upfront financing fee

Up to 2.25 percent

Mortgage insurance

Up to 1 percent

Mortgage limits

  • Home only: $69,678

  • Lot only: $23,226

  • Home and lot: $92,904

Mortgage term limits

  • 20 years for home only

  • 20 years for single-section home and lot

  • 15 years for lot only

  • 25 years for a multi-section home and lot

Titling requirements

Manufactured homes can be titled as personal property.

Fine print

Manufactured homes must be situated on a lot that meets
FHA property standards (such as hookups for water and electricity,
and foundation anchors) that is owned or leased by the primary
mortgage holder. Manufactured home must be at least 400 square feet.

Quick take

The FHA Title I loan is an obvious choice for people with bad credit looking to buy a manufactured home, but you need to do your research before you commit to this loan. According to the CFPB, Chattel loans had 1.5 percent higher APRs than standard mortgages. These loans also come with expensive mortgage insurance fees that can be passed on to you.

However the Chattel loan makes sense if you’re buying a used manufactured home or if you plan to rent the lot where your home sits.

Pros:

  • No credit standards
  • Flexible terms for land ownership
  • Can title home as personal property

Cons:

  • Maximum loan is $92,904
  • Some lender restrictions
  • 5-10 percent down payment requirement
  • Must be a fixed term mortgage

Where to find Chattel loans

Chattel loans are a niche product that few banks and credit unions offer. Half of all Chattel loans are issued by five banks: 21st Mortgage, Vanderbilt Mortgage, Triad Financial Services, U.S. Bank, and Credit Human (formerly San Antonio Federal Credit Union), according to a 2014 report from the CFPB. You can also find local lenders through the Manufactured Housing Association's lender search.

FHA loan

FHA Loans Details for Manufactured Homes

Credit score required

500 (varies by bank)

Down payment required

Credit score between 500-579: 10 percent
Credit score above 580: 3.5 percent

Upfront financing fee

1.75 percent, which can be financed

Mortgage insurance

0.45-1.05 percent

Mortgage limits

Generally $275,665

Titling requirements

Manufactured homes must be titled as real
property and you must own the lot.

Fine print

All manufactured homes must meet standards set by the
FHA including foundation anchors, water and electrical hookups and more.

Quick take

A standard FHA loan makes sense if you’re planning to buy a manufactured home and land. While credit standards vary by lender, you may be able to qualify for the FHA loan with a credit score as low as 500. If you can raise your credit score to 580, you may even qualify for the 3.5 percent down payment.

This loan isn’t as easy to get as the Chattel loan, but some people with bad credit may qualify. If you want to use an FHA loan for a manufactured home, work with your loan officer closely, so your financing is in place before your home is completed.

Pros:

  • 3.5 percent down payments
  • Credit scores as low a 500
  • Up to $275,665 in financing

Cons:

  • 1.75 percent upfront mortgage premium
  • Must pay ongoing mortgage insurance
  • Must buy owner-occupied home

Where to get an FHA loan

The Manufactured Housing Association’s lender search will also provide a list of lenders who may offer FHA loans for manufactured homes in your state. If that list doesn’t provide the results you need, work with a HUD office of housing counseling center to learn about lenders who offer FHA loans for manufactured homes.

USDA

USDA Loan Details for Manufactured Homes

Credit score required

580 and below is considered a no-go;
generally 640 and up

Down payment required

None

Upfront financing fee

1 percent, which can be financed

Mortgage insurance

0.35 percent annually

Mortgage limits

No limits, but must meet standards of
affordability based on moderate incomes

Titling requirements

Home must be titled and taxed as real estate

Fine print

You must own the lot where your home is located and meet
income eligibility requirements and the property must be
in a qualified rural area

Quick take

If you’re purchasing a new manufactured home in a rural area, the USDA loan may make sense for you. The manufactured home must be new, and you have to own the site where the home is located. However, with the lowest acceptable credit score being at the 580 threshold, USDA loans aren’t suited for bad-credit borrowers. Improving your credit to “fair” could be the difference between rejection and approval..

Pros:

  • As low as no money down
  • Low financing fees
  • Competitive interest rates

Cons:

  • Higher credit underwriting standards
  • Must own lot
  • Must buy new manufactured home

Where to get a USDA loan

If you meet the USDA eligibility requirements, connect with the HUD office of housing counseling in your state. If the USDA loan is a good fit for you, staffers there will help you find lenders who work with USDA borrowers that want in on manufactured homes.

VA loans

VA Loan Details for Manufactured Homes

Credit score required

Credit score standards set by lender

Down payment required

None

Upfront financing fee

1.25-3.3 percent depending on your military status,
home buying experience and down payment.
This fee can be financed.

Mortgage insurance

None

Mortgage limits

$424,100

Titling requirements

The house must be titled as real property,
and you must own the lot where the house is located.

Fine print

Must obtain a certificate of eligibility
(for military members and spouses) before applying for a VA loan.

Quick take

The VA loan offers a down payment of 0 percent (even for manufactured homes) as long as you own (or will buy) the lot where the home is located. The drawback to the VA loan is that most lenders set their credit score standards in the 600-range, which means that people with bad credit might not qualify. On top of that, not every VA lender offers loans for manufactured homes. Those two factors mean the you may struggle to find a lender in your area who will work with you.

If you find the lender, the VA loan is a great choice, but if you can’t, consider an FHA loan instead.

Pros:

  • No down payment required
  • No mortgage insurance
  • No firm credit minimums

Cons:

  • Upfront funding fee
  • Not all lenders offer VA loans for manufactured housing
  • Must buy home with the intent to occupy for at least 12 months
  • Must own lot

Where to get a VA loan

To take out a VA loan, you must get a certificate of eligibility (COE) through the Veterans Administration eBenefits platform. Once you get this, find an independent mortgage broker who specializes in VA loans for manufactured homes or VA loans for people with bad credit. These brokers work with multiple banks and can help you find better deals than you might find on your own. Before committing to a particular broker, check for regulatory action filed against them. You don't want to work with a broker who fails to meet the standards set by your state.

Conventional mortgages

Conventional Mortgage Details for Manufactured Homes

Credit score required

620

Down payment required

5 percent (10 percent for people with insufficient
credit for traditional scoring)

Upfront financing fee

None

Mortgage insurance

0.5 percent annually

Mortgage limits

Generally, $424,100

Titling requirements

Must own land, and home must
be titled as real property.

Fine print

You’ll have to pay mortgage insurance until your
home reaches at least an 80 percent loan-to-value ratio.

Quick take

If you’ve got a 20 percent down payment and at least a 620 credit score, and your home meets underwriting standards, the conventional mortgage is the best choice for you. This loan has competitive interest rates and no mortgage insurance for people with a loan-to-value ratio of at least 80 percent. Your home must be at least 600 square feet and meet HUD standards for manufactured homes, and you must own your lot. However, you can use this loan to purchase an existing manufactured home (built after 1976) if it is permanently affixed to an approved foundation.

Another advantage to this loan is that they do accept borrowers with thin credit files, provided they don’t have derogatory marks on their credit file.

Where to find conventional mortgages

Before you start shopping, you can use the Consumer Finance Protection Bureau's interest rate data to learn about interest rates in your state. Compare real offers from local lenders using LendingTree, or work with your state's housing finance agency to find reputable lenders in your area.

Other common financing deals

Aside from those mortgages, manufactured home buyers with bad credit might consider two other options. First, you might consider a retail installment contract. A retail installment contract is issued by the manufacturer (or installer) or your home. If you're working directly with the manufacturer to take out a loan, you should take the time to understand upfront and ongoing fees, APR and what happens if you miss a payment. The Manufactured Housing Institute provides detailed information on buying and living in manufactured houses and on how to find manufacturers and lenders who can help you finance a manufactured home.

Borrowers with bad credit might also consider owner-held financing option. Owner-held financing is a readily available form of credit, but it is risky. Before signing a lease to own agreement, find a real estate lawyer who can help you uncover title issues and explain the loan. To learn more, you can either find a lawyer through your employer (who may offer legal benefits), the American Bar Association or by contacting HUD office of housing counseling in your state.

Clean up your credit before mortgage shopping

In 2016, the average new home cost $372,500, but that’s before paying interest. According to Informa Market Research, the average interest rate for a person with a credit score between 620 and 639 is 5.115 percent, but a person with a score of at least 760 gets a 3.527 percent rate. Does just a point and a half translate to much cost difference? Absolutely. If both people finance $298,000 on a new home, then the person with great credit will pay $1,343 per month. The person with lesser credit will pay $278 more, $1,621 per month. That translates to more than $100,000 more over the life of the loan.

Tips to improve your credit score

To repair your credit before taking out a mortgage, and qualify for better terms and more options, start with these three simple steps:

  1. Pay all your current debt accounts on time, each month.
  2. Reduce your credit card utilization by paying down your credit card debt.
  3. Stop applying for credit six months before mortgage shopping.

These three factors alone account for 75 percent of your credit score.

As you take care of those items, you’ll want to check your credit report from the three major credit bureaus through AnnualCreditReport.com.

You want to be sure that you recognize all the information on your credit report, and that there are no duplicate entries. Dispute any errors or duplicates. For further guidance, use the Federal Trade Commission’s free guide to disputing errors on your credit report. If you believe you’ve been a victim of identity theft, follow the Federal Trade Commission’s advice on identity theft recovery.

Disputing errors on your credit report may prevent a bank from issuing you a mortgage, so start disputes at least 90 days in advance of applying for a mortgage. While the credit bureaus should clean up the errors within 30 days, the process sometimes takes longer

Getting a mortgage after bankruptcy or foreclosure

Bankruptcy stays on your credit report for up to seven or 10 years, depending on the type, and foreclosures stay on your credit report for up to seven years, but you don’t have to wait that long to take out a mortgage. If you take steps to improve your credit, you can qualify for some mortgages one to four years after your bankruptcy is dismissed, or two to four years following foreclosure.

 

Conventional

FHA

VA

USDA

Chapter 7

Four years from discharge or dismissal (except in extenuating circumstances)

Two years (or one year in extenuating circumstances)

Generally, two years (though it is not a disqualifying standard)

Generally, three years

Chapter 11

Four years from discharge or dismissal (except in extenuating circumstances)

Must meet credit standards

Generally, two years

Must meet credit standards

Chapter 13

Two years after discharge or four years after dismissal

Two years (or one year in extenuating circumstances)

One year of payments

Generally, one year

Foreclosure

Seven years, except if foreclosure was discharged in bankruptcy (then use bankruptcy limits)

Three years except in extenuating circumstances

Generally two years

Generally, three years

Even if you can get a new mortgage just a year or two after bankruptcy or foreclosure, it makes sense to wait longer in most cases. By waiting around three or four years, the damage of the bankruptcy and foreclosure fades, and you’ll have that extra time to revive your credit score.

To get your credit in shape after bankruptcy or foreclosure, you’ll want to continue to make bankruptcy payments as agreed and consider opening a secured credit card to rehabilitate your damaged credit. Use the credit card for daily expenses, and pay it off in full each month.

Improve your shot at approval even if you have bad credit

If you’ve got bad or fair credit, and you don’t have a lot of time to improve it, you can still take out a mortgage in some cases. These are a few things that can help you get approved with a low credit score.

  • Choose a house well within your budget. If you’ve got a strong income and a low monthly payment, the bank may be more likely to approve your loan.
  • Come up with a larger down payment. While the median down payment is just 5 percent, a person with bad credit may need quite a bit more (up to 25 percent) to get a loan.
  • Work with your loan officer: Give them paperwork in a timely manner, and follow their instructions regarding credit repair, collection repayments and debt repayments. If you’re close to gaining approval, the loan officer can help you take the last few steps to meet the bank or government’s underwriting criteria. Loan officers may take advantage of manual underwriting provisions for FHA, VA, USDA and conventional loans, but that requires more information and participation from you.
  • Ask for rapid rescoring if you’re disputing errors on your credit report, or paying down credit card debt.

Rapid rescoring

A rapid rescore is a method for “re-checking” your credit score on an accelerated time scale. Banks usually only check your credit score once when they’re considering your for a loan, but they may pay a fee to see a new score if you’ve paid down debt or removed negative information from your report, according to Experian. The bank will use the new information to recalculate your credit score to see if you qualify for a loan.

Should I keep renting?

A bad credit score by itself shouldn’t stop you from buying a home. You’ll pay more in interest costs over the life of the loan, but you’ll also start building equity sooner. Plus, a few years of paying on a mortgage will help you raise your credit score, so you can refinance later on.

However, a bad credit score can be a symptom of a bad financial situation. If you’re struggling to pay your bills on time, buying a house isn’t usually a good idea. During financial stress, a new mortgage bill is more likely to be a curse than a blessing.

Watch out for these scams targeting people with poor credit

Financial scammers are always on the prowl for desperate people who might become their next victims. These are a few pitfalls that all homebuyers need to avoid as they shop for homes and mortgages.

Mortgage closing scams

Mortgage closing scams are pernicious schemes that involve falsifying wiring instructions, the FTC warns. In a mortgage closing scam, a hacker poses as a title closing agent. He or she may email you fraudulent information about where to wire the money, or claim that there’s been a last-minute change to the details.

Closing for a home is an incredibly busy time, especially if you’ve struggled to qualify for the mortgage in the first place. To prevent mortgage closing scams, ask your title agent to send the wire information in an encrypted email. You can also request a call with the details.

Anyone who has been a victim of a mortgage closing scam should report it to the FBI immediately, and log a complaint in the FBI’s Internet Crime Complaint Center.

Complex lease-to-own deals

Owner financing isn’t necessarily a scam, but it can be complex. Many owner financing deals don’t put the title into your name until you’ve paid off the entire loan, and some deals require balloon payments after a few years, the FTC warns. If you can’t cover the balloon payment, you lose every cent of equity you’ve paid.

Even worse than difficult loan terms are situations when the owner can’t legally issue a first-lien loan. If the owner has used the house to secure any other loan, then the bank has a first-lien position on the loan.

Don’t sign an owner financing agreement until a lawyer explain the details of the loan to you. You must take steps to protect yourself from owner fraud if you want to own the house in the end.

Hard money loan scams

Hard money loans are real estate loans for investors interested in flipping a property. Hard money loans come with high interest rates, hefty down payments and short payback periods. Most of the time, hard money lenders evaluate project quality rather than investor credit when issuing loans.

If you’re considering a hard money loan at all, you should have plans to flip a property for a profit. If you can’t earn a profit on the house, then a hard money loan doesn’t make sense.

If you are considering a hard money loan because you can’t find traditional financing, be careful. There’s little oversight of hard money loans, so it’s important you know what you’re getting into with these products. You can check out this guide to hard money loans if you want to learn more.

FAQs

If a bank turns you down for a mortgage, you can ask for an explanation. When you ask, the lender has 30 days to prepare an answer in writing, as required by the Equal Credit Opportunity Act and the Fair Credit Reporting Act. A few common responses include:

  • We don’t think you can afford the payment (for instance, you’ll have to high of a debt-to-income ratio).
  • Your credit score’s too low.
  • You have an insufficient down payment.

Anyone struggling to find a mortgage should consider working with a licensed mortgage broker in his/her county. Mortgage brokers work with multiple local banks and credit unions, and they can often help if a banker cannot.

The best credit score to get a mortgage is any score above a 740, but most people with credit scores above 620 will qualify for some mortgages. And yes, it’s possible to qualify for a mortgage if you have a score of 500-620.

Yes. If you took out a loan when you had bad credit, you may qualify for a much better rate by improving your credit after just one to two years of on-time payments on all your lines of credit, according to research from VantageScore Solutions. However, if your bad credit score is the result of foreclosure or bankruptcy, your credit score may not fully recover for seven to ten years, so don’t count on a massive rate drop right away if those are the reasons for your bad credit score.

Given how much easier it is to qualify for a mortgage and how much you can save when you have good credit, waiting to buy often makes sense.

VA loans don’t require a down payment, and they have no firm credit minimums, but you’ll still need to meet a bank’s underwriting standards (which could be as high as a 640 credit score). If you have a credit score of 580-640 and you meet other qualifying standards, you may qualify for a no-money-down USDA home loan..

Outside these options, the only no-money-down mortgages for people with bad credit include owner-held mortgages or rent-to-own deals. Do your homework.

Not all mortgages allow cosigners, but a cosigner could help you qualify. Asking someone to cosign essentially means asking that person to pay your mortgage if you’re ever unwilling or unable to pay the bill. We generally don’t recommend becoming a cosigner unless you plan to live in the house.

An adjustable-rate mortgage makes a lot of sense if you have bad credit and you are confident you can improve your credit score within seven years before your interest rate adjusts (in the case of a 7/1 ARM). If your credit improves, you may be able refinance at a lower, fixed rate before the interest rate adjustment takes place. However, this option is risky. You may be stuck with higher interest rates if your credit doesn’t improve or if interest rates rise by the time you need to refinance.

Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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