FHA allows you to buy a home with only 3.5% and a 580 credit score. Most lenders require 620-640 credit score, but there are lenders that will go down to a 580 credit score.
When you have a 580 credit score your debt to income ratios are limited, compared to a 620 credit score. Your maximum debt to income ratio is 50% with 2 compensating factors. It you have 1 compensating factor you cannot go above at 47%. If you have no compensating factors you will not be able to go above a 43% debt to income ratio. There a 5 compensating factors the FHA allows. They are 3 months of your mortgage payment, enough residual income, no other debts besides your new mortgage, rent is same as your new mortgage payment & you have other income that we are not using to qualify you. If your debt to income ratio goes above a 43% with a score below 620 you will have to do a manual underwrite. Barclay Butler Financial does these loans. # 580creditscore, #3.5%down.
If you had to declare bankruptcy because your income was reduced by at least 20% you can qualify for the FHA Back to Work program. Which allows you to buy a home 1 yr. after your Ch. 7 bankruptcy was discharged.
The income reduction had to be at least for 6 months. You will also have to get counseled 30 days prior to applying for a mortgage. Your credit has to be good since the bankruptcy. You cannot have any lates on housing history or installment loans (auto loans etc..). The min credit score needed for this program is 580 if you want to put down only 3.5%, if you have more to put down you could go as low as 550. This program is only for people who had a reduction in income. Barclay Butler Financial Inc. is currently doing these loans, they are manually underwritten. Please contact me with any questions.