Buying a House in Chicago With Bad Credit

Here are some facts about getting financing for a single-home family in Chicago for people who have bad credit meaning they have a 580 or lower credit score. We will go through all options and facts that are available nowadays in 2022.

If you’re among the many Americans with bad credit, you may think that securing a home loan is out of your reach. But while having less-than-perfect credit can make it more difficult to qualify for a loan, it’s not impossible. In fact, there are several programs available to help people with bad credit buy a home.

During the 2020-2022 forecast period, there will be several good home financing alternatives for people looking to finance a house in Chicago with bad credit. Fellows who have been rejected by their local bank and/or credit union. This is due to poor credit or lender overlays, and CLN is the lender of choice.

Borrowers with a bankruptcy, foreclosure, deed in lieu of foreclosure, short sale, open unsatisfied collections, charge-offs, late payments, or other credit problems can now get mortgage loans from Capital Lending Network. We are a mortgage firm licensed in 48 states with over 160 wholesale lender lending arrangements. For its no lender overlays on government and conventional loans, CLN Mortgage has a nationwide reputation.

Loan Options For Chicago Low Credit Borrowers

FHA Loan For Low Credit Borrowers LIving in Chicago

If your credit score is below 580, you’ll generally need to put down 10% of the purchase price in order to secure a loan in Chicago. But if your score is 580 or above, you may be able to get an FHA loan with a 3.5% down payment.

FHA Loan in Chicago with Bad Credit

FHA loans are available through approved lenders across the Chicagoland area, and they’re especially popular with first-time homebuyers.

Top Low Credit Score Issues Chicago Residents Struggle

FHA Loan With Recent Late Payments:

  1. Lenders don’t have a problem with bad credit or open collections.
  2. They do, however, desire to see a track record of timely payments in the previous year. One or two late payments in the last 12 months are not deal breakers if you have an OK/qualified per automated findings.

FHA Lown With Low Income in Chicago

Borrowers who don’t have adequate documentation of income because they are self-employed or work for cash may still qualify for a residential mortgage loan as long as they can get a non-occupant co-borrower.

FHA With Gaps in Employment

  1. Borrowers who have been out of work for fewer than two years may still qualify for a home mortgage loan.
  2. To qualify for a residential mortgage loan, borrowers who have been unemployed for six months or less just need to submit 30 days of pay stubs with their new employer.
  3. To qualify for a residential mortgage loan, borrowers must be employed and have been unemployed for six or more months.

Judgments and tax liens:

  • Unless you can pay them off in advance of applying for a mortgage, if they have an unpaid judgment or tax lien, most lenders will flat out refuse your application.
  • However, we can assist borrowers in obtaining a mortgage loan with unsatisfied judgments or tax liens.
  • So that our clients may receive an IRS settlement, we can help them develop a payment arrangement with the judgment creditor and/or Internal Revenue Service.
  • You’ll need three months of canceled checks that have been paid to the judgment creditor, as well as proof that the debt has been satisfied.

Getting Financing For a House in Chicago After Short Sale

  • After a short sale, you may qualify for an FHA-insured residential mortgage loan with a down payment of 3.5 percent.
  • There is a three-year waiting period after the short sale’s settlement date, which is shown on the HUD settlement statement.
  • Borrowers must wait four years after a short sale to qualify for conventional loans, according to Fannie Mae and Freddie Mac.

FHA Loan With Foreclosure in Chicago

  1. To qualify for an FHA-insured 3.5 percent down payment loan, you must wait three years after the recorded date of the foreclosure or deed in lieu of foreclosure.
  2. Fannie Mae and Freddie Mac accept Conventional loan applicants that have waited four years since completing a deed in lieu of foreclosure or short sale.

Bankruptcy And Qualifying in Chicago For Mortgage

  1. To qualify for an FHA loan, you must wait two years after your bankruptcy discharge date. You’ll need to wait two years from the end of Chapter 7 bankruptcy.
  2. FHA and VA loans are available to borrowers who have completed their Chapter 13 Bankruptcy Repayment Plans one year after starting the plan.
  3. There is no waiting period after a Chapter 13 bankruptcy’s discharge date on VA and FHA home loans.

Chicago Home Loan With Bankruptcy

Loan Qualification With Collections Accounts in Chicago

  • Unpaid balances on open accounts are not required to be paid.
  • Consumers will be reactivating old collection accounts by paying off old debts, which will drop credit ratings.

FHA Back To Work Program

On August 15, 2013, the United States Department of Housing and Urban Development, better known as HUD, launched an FHA Back To Work Extenuating Circumstances Due To An Economic Event mortgage loan program. After a person has had a bankruptcy discharge, had a foreclosure, deed in lieu of foreclosure, or short sale under the FHA back to work extenuating circumstances due to an Economic Event mortgage loan program, the waiting period is shortened to one year.

However, the candidate needs to be qualified in the sense that they must have been unemployed or underemployed for at least six months and have had a reduction of their household income of at least 20%. They were unable to pay their mortgages because of the recession, and they filed for bankruptcy or went through a foreclosure. They must have re-established their credit since the economic event and not had a single late payment in order to be eligible for an FHA back-to-work mortgage loan.

The FHA back-to-work mortgage loan applicant must take a one-hour HUD-approved housing counseling course and the mortgage application procedure cannot begin 30 days after their housing certificate date of completion. The FHA Back To Work Program has been discontinued.

VA Financing for Veterans in Chicago With Low Credit Score

Another option for people with bad credit is a government-backed program like the VA loan program. If you’re a veteran or active duty military member, you may be able to qualify for a VA loan with no down payment and no private mortgage insurance (PMI).

VA Loans are excellent mortgage financing options, but they are only available to veterans with a certificate of eligibility. Capital Lending Network is an authority on Chicago VA Loans for people with terrible credit.

Va Loan With Low Credit Score in Chicago

There are no lender overlays on VA loans at Capital Lending Network. The team at CLN has assisted thousands of borrowers with bad credit scores of 500 FICO or less in closing on their VA loan. Here are some of the most important bullet points regarding VA loans:

  • Closing costs are not included in the estimate. The seller may choose to finance up to 100% of the purchase price, which is extremely beneficial if you don’t have much cash available.
  • On Veterans Affairs Loans, the VA guarantees 100% loan to value.
  • There are no minimum credit score requirements for veterans applying for VA loans.
  • With an AUS approval, there is no maximum debt-to-income ratio limit.
  • Manual underwriting
  • A FICO credit score of 500 or above
  • Veterans with a FICO score of 580 and below may qualify for compensation if they have compensating circumstances.
  • VA loans can have a maximum of 4 percent limit on seller concessions.

Conventional Loans Credit Score Requirements in Chicago

If you don’t qualify for a VA or FHA loan, there are still other options available. You can get a conventional loan with a higher interest rate and private mortgage insurance (PMI) if you put down less than 20% of the purchase price. Or, you may be able to find a portfolio lender who’s willing to work with you even if your credit score is below 580.

Bad credit can make it difficult to qualify for a conventional loan, but it is still possible to get approved. There are a few things you can do to improve your chances of getting approved, such as working on improving your credit score, saving up for a larger down payment, and finding a cosigner. If you are able to do these things, then you may be able to qualify for a conventional loan with bad credit.

A conventional loan is a type of mortgage that is not backed by the government, such as an FHA or VA loan. They are typically available to homebuyers with good credit and a down payment of at least 3%. Because conventional loans are not backed by the government, they tend to have higher interest rates than government-backed loans.

COVID-19 Recovery Options For Homeowners in Chicago

The Federal Housing Administration (FHA) on July 23, 2021, released a simplified COVID-19 Recovery process to assist homeowners with FHA-insured mortgages who have been damaged financially by the COVID-19 epidemic in bringing their mortgages current and staying in their homes. Eligible homeowners who are unable to resume making mortgage payments will be able to receive a reduction in the principal and interest portion of their monthly payments under the simplified COVID-19 Recovery waterfall.

This program is a continuation of the forbearance program under the CARES Act which allows for a temporary pause or reduces borrowers’ mortgage payments including Chicago residents

The government will assist those who are most at risk of losing their houses by providing a path to long-term recovery, including low-income persons, minorities, and young first-time homeowners who have experienced economic difficulties as a result of the epidemic. In order to make their existing monthly mortgage payments, FHA has developed a new COVID-19 Recovery Standalone Partial Claim.

Additionally, as permitted by the jurisdiction’s HAF program and other restrictions, President Biden’s American Rescue Plan Homeowner Assistance Funds (HAF), administered by the Department of Treasury, may be used in connection with FHA-insured mortgages or subordinate loans. President Biden prioritized the country’s public health and economic problems by passing the American Rescue Plan.

It works by taking targeted measures to ensure that homeowners affected financially by COVID-19 have the support they require to stay in their homes as Americans continue to go back to work and our economy continues to recover.  The bottom line is that today’s economy is making it increasingly difficult for individuals to get the financing they need,” said Federal Housing Finance Agency Director Mel Watt. “These choices for FHA borrowers will ensure that people who need help receive it in a fair and timely manner.

New COVID-19 Recovery Mortgage Program Available in Chicago

The new FHA COVID-19 Recovery streamlines and revises FHA’s previous choices for distressed homeowners, eliminates extra paperwork, and allows mortgage servicers to provide more substantial payment reductions to eligible homeowners with FHA-insured Single Family Title II forward mortgages. The following are the two simple step waterfall alternatives available for homes used as the homeowner’s primary residence:

  • COVID-19 Recovery Standalone Partial Claim: for homeowners who may resume making their current mortgage payments, the COVID-19 Recovery Stand Alone Partial Claim enables mortgage payment arrearages to be placed in a zero interest subordinate lien against the property that is paid off when the mortgage term expires, usually when the homeowner refinances or sells the home.
  • COVID-19 Recovery Modification: This modification allows homeowners who can’t resume making current monthly mortgage payments to extend the term of their loan and lower the borrower’s monthly principal and interest part of their mortgage payment for up to 360 months at a set rate.
  • If the homeowner has Partial Claim funds, they must be included in the COVID-19

Recovery Modification. For properties that aren’t lived in by the owner, mortgage servicers are required to offer eligible homeowners FHA’s COVID-19 Recovery Non-Occupant Loan Modification, which extends the mortgage term to 360 months or less if requested by the homeowner at a set interest rate.

NON-QM Loans in Chicago For Low Credit Score Customers

In order to qualify for a mortgage, a person must wait the minimum required time period after bankruptcy and foreclosure. Borrowers who do not fulfill the minimal necessary waiting period after bankruptcy, deed in lieu of foreclosure, foreclosure, or short sale that are unable to meet QM lending standards can currently qualify for Non-QM Loans.

Capital Lending Network does not require applicants to wait after a foreclosure or a short sale before qualifying for Non-QM Loans. With real estate values continuing to rise in many areas of the country, homebuyers may use Non-QM Loans to purchase a house and subsequently refinance when they can qualify for QM Loans.

Government and conventional mortgages are referred to as qualified mortgages. There are no uniform non-QM loan standards. Each non-QM lender has its own set of non-QM lending criteria based on the loan program. Non-QM loans are non-conforming portfolio loans that do not meet government or conventional mortgage standards. Non-QM mortgage rates are significantly higher than traditional loans. Down payment of at least 10% to 30% is required. There are no loan cap restrictions on Non-QM Loans, below are NON-QM loans requirements for people with low credit score living in Chicago:

  • Asset Depletion Program available in all counties in Chicago (Cook County, Lake County,  Du Page County, Kane County, Will County, Mc Henry County)
  • 12-month Bank statement Program for self-employed
  • Can qualify with late payments in 12 months
  • 95% LTV including Jumbo Loans and Debt Consolidation Loans

 

The Capital Lending Network has hundreds of mortgage loan options available through its network of over 160 wholesale lenders. The following are the current mortgage loans from our lending partners:

  • From government-backed loans such as FHA, and VA to USDA loans
  • NON-QM, Jumbo Loans, Asset Depletion, DRSC and ITIN Loans

We are available is available 7 days a week, 24 hours every day. Please click above apply now and start talking to one of our senior loan professionals today


Peter has 7+ years of experience in residential lending. He is a licensed Realtor in the Chicagoland area.