How To Buy A House With Bad Credit in Arizona: Find a Lender (2024)

If you have a bad credit but are eager to buy your own home, you may be finding that traditional banks and loan types are standing in your way. However, many investors and mortgage brokers are here to lend a helping hand to turn your homeownership dreams into a reality by helping you figure out how to buy a house with bad credit in Arizona.

Bad credit can create a situation that feels almost hopeless. You will be judged by loan officers and potential employers before you even walk in the door. If you have rotten credit, chances are you have been denied a home loan, credit cards, car loans, and even jobs. Many people and companies will stereotype you as being lazy or irresponsible based on your credit number. The truth is, bad credit can happen for a variety of reasons. Divorce, job loss, injury, or illness can cause your credit score to go down. In the current economy the average credit score is in the 600s, meaning that bad credit is more common than you may think. High fuel costs, increased taxes, inflation, and falling housing prices have put a financial strain on many Americans.

If you find yourself in the unfortunate situation of having bad credit, you may think that purchasing a home is impossible. However, there are many loans that you may be able to qualify for, even with rotten credit. If you find yourself wondering how to buy a house with bad credit in Arizona, there are a few things you need to know. First and foremost, it is possible to qualify for a home loan with bad credit. There are a number of programs and loan types geared towards sub-prime or bad credit borrowers. Secondly, there are specific benefits and risks associated with each type of loan. Knowing all the benefits as well as the risks can help you make an informed credit decisions

Arizona Home Loan Types that Benefit Bad Credit Borrowers

One type of loan that can benefit you if you have bad credit is an FHA loan. An FHA loan is a loan type that is insured by the federal government. In order to obtain an FHA loan, you need to work with an FHA accredited lender. The lender will approve you for the loan based on your income and credit score. Each month you will pay extra in the form of a monthly insurance premium or MIP. The MIP will vary based on your loan amount and the value to debt ratio of the property you purchase. The reason you pay this insurance premium is to insure you loan against default. If you default on the loan, the FHA will pay the bank back. This is why an FHA loan is an ideal loan type for borrowers wondering how to buya house with bad credit in Arizona. Since the loan is insured by the government, the bank is more likely to give a loan to a borrower that it views as being higher risk. In order to qualify for an FHA loan, you will need to have at least 3.5% of the purchase price to put down so make sure you save accordingly. Not having this could delay your loan.

Another type of loan that you will want to look into if you have bad credit is an adjustable rate mortgage or ARM. . An ARM is a mortgage that has a fixed interest rate for a set period of 1 to 7 years. During that period you will pay a relatively low interest rate, usually lower than the prime rate. After the initial fixed period, the rate will reset to a higher rate and your mortgage payment will increase. Borrowers with bad credit can take advantage of this program as a way to own a home because the initial payments are low due to the low interest rates. Keep in mind that after the rate resets your payment will increase significantly. An ARM is a good option for borrowers who plan on either selling or refinancing before the rate resets. In order to qualify for an adjustable rate mortgage, you will need to have at least 10% of the purchase price to put towards a down payment. If you are buying a home for $200,000, this means that you will need at least $20,000 in savings.

Finally, in addition to ARMs and FHA loans offered by banks and mortgage brokers, there are a variety of private lenders that can help buyers navigate the Arizona housing market. Private equity firms and hedge funds offer home and property purchase loans for both home ownership as well as real estate investment purposes. Private loans will have terms that vary depending on the firm, but they are still overseen and regulated by the government. You may pay a higher interest rate, but you are also much more likely to obtain approval, even with bad credit. Since the firm is private, there is much more flexibility in terms of FICO scores as well as extenuating circ*mstances that may have created your bad credit.