There are a few reasons why you may not qualify for a home loan: maybe you have a low credit score, too much debt, or simply don't have a sufficient income to qualify. But that doesn't mean you have to give up your dream of buying a home. There are plenty of alternative options for those who don't qualify for a traditional loan. Whether you can find someone to co-sign with you or want to explore a non-traditional loan, we've outlined some possible options along with their benefits below.
Co-Signer
If you have a close friend or a family member who is willing to cosign on your mortgage for you, this is one great option to help you with a home loan if you can't otherwise qualify for one. A co-signer is someone who will be held responsible for your mortgage payments if you are not able to continue paying them. If someone co-signs with you, both of your credits will be considered, so this will greatly increase your chance of qualifying if your lack of established credit is standing in your way, especially if your potential co-signer has great credit and funds. This is obviously a big responsibility and favor. Not many people are willing to co-sign because of the risk of having to pay off your loan for you, but if you happen to be sharing a home, asking one of your housemates to cosign (especially if you're going to be splitting the mortgage payments) it's a very reasonable option that you should consider.
Non-traditional loans
If you don't have sufficient credit or can't afford the typical 20% down-payment, but you also aren't able to find a co-signer, don't worry. You still have options. There are several companies that offer non-traditional loans, which will require little to no money down.
FHA
The Federal Housing Association offers loans to anyone with a credit score of 580 and above. These loans were created in order to increase homeownership in America, and they're a great option for anyone who doesn't qualify for a traditional loan or can't afford a larger down payment. An FHA loan also only requires a 3.5% down payment, which is much lower than the traditional 20%. These loans are also an option even if you have a lower credit score; you can also be approved with a credit score of 500, you would just have to pay a higher down payment of 10%-- which is still relatively low! Another plus is that sometimes the FHA will even cover closing costs.
VA
If you happen to be a veteran, a Veteran's Association loan is a great option for you. These loans are some of the cheapest options available, as they are 100% financed by the VA and they require zero percent down. The only money you'll need to pay is usually a one-time funding fee of 2.15%. However, this fee may be waived for veterans who receive compensation for service-connected disabilities or receive disability compensation if they did not receive retirement pay, veterans who are eligible to receive compensation after a pre-discharge exam or review or are still active on duty, and surviving spouses of veterans. Typically, you'll need a credit score of at least 620 to qualify, but some lenders will accept those with lower scores.
USDA
USDA loans were created by the US Department of Agriculture in order to promote the development of infrastructure
in rural areas of the United States. But don't write these loans off just because you don't consider the town you live in to be rural; the USDA considers basically anything outside of a major city to be 'rural,' so as long as you are in an area that isn't urban, you probably qualify. These loans are offered to low to moderate-income families living in these 'rural areas' with 100% financing mortgages. The mortgages are zero-down, with super-low mortgage insurance premium payments of about .35% that are built into your monthly payments. Not being able to qualify for a traditional loan may feel disheartening, but it's not the end of the road, and your dreams of owning your own home don't have to be crushed! As you can see, there are still plenty of flexible options available if a traditional loan isn't right for you. Whether you don't have a strong credit score, can't afford the typical 20% down payment, or are being held back for other reasons, there's always another way to receive a loan that works for you. Continue to explore these options, and you'll be on your way to buying your dream home in no time!