Obtain a mortgage even with bad credit
Applying for a mortgage
is usually stressful because there are so many important and confusing terms
to understand, while you are borrowing the most amount of money you have
ever dealt with in your life. Once you sign on closing day, that’s
it; there’s no backing out.
Then again, a mortgage is a great
thing. It provides you the financial
assistance necessary to purchase the property you otherwise would not have
been able to afford.
But what if you can’t obtain a mortgage due to bad credit? There are
usually some ways around that roadblock.
RJ Baxter’s article, “How to Get a Mortgage Even if You Have
a Poor Credit History,”
posted on jumboloanrates.net, provides vital information and tips on how
to accomplish the goal of being approved a mortgage regardless of your negative
credit.
“If you have had credit troubles in the past, you know that these
things can plague you for years, making it difficult or impossible to obtain
credit. If you can get new credit, often times interest rates and payment
terms are ridiculous.”
The reason why rates and terms will be outrageous is because lenders view
each borrower in terms of risk. They scrutinize several factors such as
credit history, job stability, debt-to-income ratio, the percentage of your
down payment, property type, and etc.
“If you have had recent credit troubles, you are considered a greater
credit risk. A person who is a greater credit risk will have a greater likelihood
of foreclosure; therefore, the lender must charge a higher interest rate
to compensate for this fallout in non-performing loans.”
The import thing you will want to understand is how lenders view the variety
of credit problems. One of the most prevalent credit deficiencies is due
to collections agencies. Collections are divided into two categories: medical
and other, with medical being easily overlooked by lenders because these
debts are often unavoidable.
“Another problem is lack of credit accounts. What I mean by credit
accounts are open and active credit lines such as auto loans, student loans,
credit cards, or mortgages. If you are looking to borrow more than 90% of
the sales price of a home, or you are trying to qualify for a prime loan,
most lenders will require you to have at least 3 credit lines that have
been open for at least 24 months.”
One of the scariest problems is bankruptcy. Fortunately, lenders have become
much more lenient within the past few years in lending to applicants even
one day out of bankruptcy because of the tough economy for low income households.
“Late payments are the most common problem with people’s credit.
Even people with very high credit scores may have a 30 day late or two.
Mortgage lates will affect your ability to qualify and what kind of terms
you can get. Consumer lates (credit cards, auto loans, etc), may not affect
your chances of getting a mortgage at all, unless you are attempting to
get a prime mortgage.”
So, how can you turn these negative credit problems into a mortgage approval?
The first thing to know about this process is that if your negative credit
is older than 24 months, you will have an easier time getting approved.
Also, a bankruptcy will fall off your credit report after 10 years, and
collection accounts will disappear after 7 years. This is significant to
note because if you have had outstanding collection accounts on your credit
for six years, it may be in your best interest to wait and not pay it off.
“One of the most common problems I see, especially with my clients
with past bankruptcies, is reporting errors on the credit report. By this
I mean that credit lines are being reported wrong. Many times, if you had
a bankruptcy, the credit bureaus will still show some of the accounts open
and delinquent. You can do wonders for your credit just by challenging these
items and getting your credit report updated.”
Now you have a better understanding of what lenders view as bad credit and
how it can be rectified (time and sometimes money).
Even if you cannot completely clean up your credit, a lender will take you.
If you are initially denied, try another lender. Do not limit yourself.
There are lenders that specify in getting bad credit borrowers approved.
Back to Articles
