#bad credit mortgage
If you have collections, judgments, liens, recent bk, back child support, late s on your credit record than you may have derogatory or bad credit . All of these items are regularly reported to the 3 main credit bureaus. The more derogatory credit which appears on a credit report the lower the credit scores and the worse the credit history.
With poor credit history the underwriters of standard loans are generally required to refer a mortgage application. This refer tends to end up in a denial on the grounds of bad credit or inefficient credit history. At that point a bad credit mortgage is usually the borrowers option. After the markets turned in the end of the last decade many ‘bad credit lenders ceased to operate. Most B,C,D and alt loans are no longer offered. So what to do? lets review.
There is no one product that is a bad credit mortgage but we need to understand what they are and who provides them.
What a bad credit mortgage is referring to is a conventional loan that is funded by private investors and does not follow the approval guidelines set forth by Fannie Mae, Freddie Mac, HUD, VA or any other government or quasi government agency.
The loans are still required to follow RESPA * and HUMDA* ( but they may not be insured by the government s loan insurers. Those government insurers, listed in the previous paragraph ,are not the only federal home loan programs. The Dept. of Agriculture may also issue loans and many state and local agency may issue loans under similar federally issued guidelines.)
The capital to lend on the bad credit mortgage is gained through private means including going to the open market and selling bonds. The lending/product guidelines are set forth by the private company and usually the same banks/brokers who sell conventional mortgages can originate bad credit home loans. These ‘secondary sources of funds have largely pulled away from this lending practice so we need o look at rebuilding credit and using a federally insured loan.
What you should expect when getting a bad credit mortgage.
Historically, the loan usually had a higher interest rate than the current standard conventional mortgage. It is not uncommon for the rate to exceed 2 points higher than a good credit loan. But there may also be adjustments to the term of the loan. A mortgage may have been an arm loan, or a libor. These adjustable terms and higher rates help the lender justify the lending or money to a poor credit borrower. Basically, increase risk on the lender must mean a greater reward for the one lending. But these loans tended to lead the borrower to a situation that was unbearable. Payments often shoot upwards and the term came due. Foreclosure likely resulted when the borrower could not handle this adjustment. These loans have largely been pulled from the market.
It was usually ‘sold to the borrower’ to be used as a band aid loan. It rarely makes sense to keep that loan for it s full life, besides most bad credit mortgages are due before the full term has arrived. A borrower should have used the loan as tool to refinance and pay of the bad debt or to acquire the home and then start repairing the poor credit history. Within 2 to 3 years of steady work on credit repairing and creating a solid new credit history many borrowers can refinance out of a bad credit mortgage an get a standard loan. But often the borrower never learned how to be a better borrower or unscrupulous lenders ‘tricked borrowers into loans that they could never really refinance out of.
* – Federal rules and acts which set forth the procedures and requirements of lenders, banks and real estate companies (including title and settlement agencies) involved in the lending and real estate transactions with the consumers.
OK, so the ‘old’ Bad credit loans are no longer around, what should I do if I have bad credit and want a home?
Well to cut to the point, you have to be responsible to have a mortgage and buy a home. So your credit needs to be repaired. If your scores are 580 or higher a loan officer maybe able to help secure you financing. If your credit is more challenged then you need to work with your loan officers to help understand what needs to be corrected. Sometimes, simple and fast corrections of mistakes made to a credit report can raise your score and help you qualify. Sometimes, it may take months but it will help you for the rest of your life.
PLEASE NOTE – The information below is provided by a third party. It has been included because they do provide a credit monitoring program and may assist with credit repair. We do not warranty or guarantee their services but have included it as a resource to this sections visitors.
To Improve your credit follow these steps 5 Quick Steps to a Better Credit Score to help prepare you for a bad credit mortgage.
Learn how to manage your credit score and improve your creditworthiness
Think of your credit score as a picture of your credit risk. This picture reflects your risk at a specific point in time. A picture does not change; however, when you take another one, you will probably look a little different. Similarly, when your credit information changes, your score will also change to reflect the updated information.
There are steps you can take to ensure that each time a new “credit picture” is taken, it shows your best side. By observing the following guidelines, you can influence your credit worthiness for the better:
- Be punctual- Pay all your bills on time. Late payments, collections, and bankruptcies have the greatest negative effect on your credit score. Check your credit report regularly and take the necessary steps to remove inaccuracies – Don’t let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report contact the creditor associated with the account or the credit reporting agencies to correct it immediately. Watch your debt – Keep your account balances below 50% of your available credit. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $500. Give yourself time – Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use. Avoid excessive inquiries – A large number of inquiries occurred over a short period of time may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties or overextending yourself by taking on more debt than you can easily repay.
Bad Credit Mortgage Learning Center.
Speak to a qualified loan officer about your credit qualifications, request below: