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Getting Loans with Low Score

By Sally Maison
Published: Saturday, September 26th, 2009

The recession and the credit crisis took its hardest hit on consumers. Many have defaulted their loans, filed foreclosures, and even bankruptcy. As a result, credit scores plunged, making it more difficult for many American families to save their homes. People who have just recently graduated also find it difficult to own the home they have always dreamed of. Their lack of credit history makes lenders skeptical about their ability to pay. Fortunately, consumers can still find a way to get mortgage loans despite having low debt rating.

Getting Loans with Low ScoreRealtyTrac, a company which lists real estate foreclosures, says that a total of 1,905,723 foreclosure filings were made as of July this year.  To avoid losing homes, consumers must find ways to refinance loans. They can still do that with low credit scores through the Federal Housing Administration (FHA).

FHA is not a lending company. It is a federal government agency which negotiates which private lenders to help consumers get a loan. Why would creditors give loans to people who are recommended by FHA? This is because the Federal Housing Administration is insured by the government. Anyone who is FHA-recommended will be considered a lesser risk since the agency’s insurance will cover him in case he is not able to pay his loan.

At lower risk levels, newlyweds, recent college graduates, and people who had financial difficulties after getting laid off can already avail loans at low interest. They can avail financing or refinancing despite low debt ratings. This is because the Federal Housing Administration focuses on the overall credit history when granting loans, and not on the score.

The government also provides assistance to small-scale entrepreneurs who have poor debt ratings. This is through the Small Business Administration (SBA), which gives funds through their microloans. A person can apply in an SBA program if the capital he needs does not exceed $35,000. SBA programs are available locally so small entrepreneurs do not have to board a plane to get the financial boost they need. Just like FHA, SBA does not provide the financing itself. There are intermediary lenders which will give the money to individuals. Hence, the terms and interest rates will vary from one SBA applicant to another.

The Small Business Administration also opened a new program called America’s Recovery Capital. The loan limit is at $35,000 still, but the terms vary. Specific conditions are laid out on the agency’s official website.  This program aims to assist businesses as they tilt their way through the economic crunch. Hopefully, these government loans can help Americans get back on their feet while their credit scores are down.

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