Qualifying for an Arizona Mortgage with Bad Credit

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Qualifying for an Arizona Mortgage with Bad Credit

If you have less than perfect credit, you can still purchase a home in the Grand Canyon State. There are many options for borrowers looking to find an Arizona mortgage with bad credit. Learn about the different programs available and how to qualify for each type of loan to make your real estate dreams a reality.

Having bad credit can seem like an impossible situation. If you have a bad credit score, you will have trouble qualifying for a mortgage, getting a car loan, or even obtaining a store credit card. You may even have trouble finding a new job because many employers run your credit score. The only way to improve your credit is to make on time payments which is impossible if you can’t qualify for credit to make payments on. You may feel like there is no way out. Luckily, there are programs that allow applicants to obtain an Arizona mortgage with bad credit. A mortgage is a great way to begin to rebuild your credit history.
A bad credit score in terms of obtaining a home loan is classified to be at or below about 640, but this has varied with time and location. However, according to national credit bureaus, the average American’s credit score is around 678, meaning that most people don’t have perfect credit. If you have bad credit, there are a number of events that could have gotten you there that are beyond your control. Divorce, job loss, inability to make mortgage payments due to an over-inflated housing market, and the recent recession are all factors that have negatively impacted may people’s credit scores.
If you are looking for an Arizona mortgage with bad credit you are not alone. Approximately 42 million Americans have a sub-prime credit score. Don’t let your bad credit keep you from owning a home when there are so many bad credit loan programs available to Arizona residents.

Types of  Arizona Loans for Borrowers with Bad Credit

One loan type that is available for borrowers in the market for an Arizona mortgage with bad credit is an adjustable rate mortgage or ARM. An adjustable rate mortgage is a short term mortgage with a term of anywhere from 1 to 7 years. During your initial term the interest rate on your mortgage is very low, usually below the prime rate. This makes your payment relatively low as well. The lower monthly payment allows borrowers with bad credit to qualify when they may not be able to for a traditional 30 year loan. After the initial term of you loan, the interest rate resets and your payment may be higher. This can be a good option for someone who is on the road to repairing his credit and will be able to refinance to a 30 year mortgage at the end of the adjustable rate term. One thing to keep in mind with an ARM is that they require a 10% down-payment. This helps ensure that the property value will not drop significantly below the loan amount.
A second type of program that a borrower in Arizona with bad credit might consider is a hard money loan. A hard money loan is designed as an investment strategy and isn’t a good option for owning a home you intend to live in long term. A hard money loan is backed by a group of investors, rather than a bank. The investors will look at your property purchase as well as renovation plans to determine if the loan is a good investment. If you have bad credit they are more likely than a bank to look past your credit score if you have a sound investment idea. Hard money loans are short term loans primarily designed to fix and flip a property for a profit.
A final type of loan that can help individuals looking for an Arizona mortgage with bad credit qualify to purchase a home is an FHA loan. FHA stands for Federal Housing Administration and this entity gives out a type of government backed loan. Borrowers are only required to make a 3.5% down-payment so it can help keep some cash in your pocket. In addition, the loan is insured by the federal government so banks are more willing to lend to sub-prime borrowers. This insurance will cost you though. Be aware that if you take out an FHA loan, you will be required to pay make PMI payments. These can be anywhere from 80 to over 200 dollars a month depending on the amount of your loan. You will make them until the loan amount that you have is less than 80 percent of your purchase price. The PMI payments are a type of insurance you pay to help secure the investment in case of default.

Talk with a mortgage broker to determine the best fit for your home buying needs.

Programs and loan types are constantly evolving and changing. A broker can help you choose the right program to fit your financial needs. 

Dennis Dahlberg

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917

NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

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