If you are not that familiar with FHA or VA mortgage loans, well, they allow approvals with borrowers that have bad credit. Now, the key to getting an approval with bad credit on a FHA loan are compensating factors. Some of the most powerful compensating factors are listed below.

So, if you are looking to buy a home or refinance your current mortgage and believe you have bad credit, consider these compensating factors that help in getting you approved.

1. The borrower has successfully demonstrated the ability to pay housing expenses equal to or greater than the proposed monthly housing expense over the last 12-24 months.

2. The borrower makes a large down payment (ten percent or more) toward the purchase of the property.

3. The borrower has demonstrated an ability to accumulate savings and a conservative attitude toward the use of credit.

4. Previous credit history shows that the borrower has the ability to devote a great portion of income to housing expenses.

5. The borrower receives documented compensation or income not reflected in the effective income, but directly affecting the ability to pay the mortgage.

6. There is only a minimal increase in the borrower’s housing expense.

7. The borrower has substantial documented cash reserves.

8. The borrower has substantial non-taxable income.

9. The borrower has a potential for increased earnings, as indicated by job training or education in the Borrower’s profession.

10. The home is being purchased as a result of relocation of the primary wage earner, and the secondary wage earner has an established history of employment, is expected to return to work, and reasonable prospects exist for securing employment in a similar occupation in the new area.

If you feel you don’t fully understand one or more of these factors, please feel free to contact me, jbucio@hmcdirect.com, and I will help you with explanation.