Bad Credit Mortgage

Whether you have good credit or bad credit, mortgage lenders still want your business. Of course, a bad credit mortgage is much more difficult to obtain - but it’s by no means impossible. Here are a few ways that borrowers with bad credit (i.e. sub-prime borrowers) can still get home mortgages.

Accumulate Cash

It can take years to get your credit score out of the doldrums, especially if you have had a bankruptcy or foreclosure. For bad credit mortgages, a faster and better route to convincing mortgage lenders that you are a worthy borrower is by putting up more cash. Mortgage lenders are hesitant to give loans to those with bad credit ratings for the fear that they will also default on the mortgage. But by putting up 25 percent or more of the value of the home as a down payment, you not only reduce their risk but prove your ability to save, budget and plan ahead. Furthermore, you will be borrowing less money, which will reduce overall risks for the lender and costs for you.

Pay Higher Interest Rates

This, unfortunately, is an unavoidable aspect of bad credit mortgages. In exchange for extending more trust to you due to your checkered credit history, lenders will always charge higher interest rates for bad credit mortgages than prime mortgages. Expect to pay more in interest for your mortgage - you may even want to set aside some savings to help you handle the added costs.

Get a Self-Certified Mortgage

Many mortgage lenders base their decisions on whether to extend credit to you or not by carefully sifting through your financial records, credit history, assets and income statements and other documents. Most go one step further and verify your employment, your assets and the information from your tax documents. If you are just coming off a rough patch in your financial history, this can effectively bar you from receiving a traditional mortgage.

As a solution, some mortgage lenders offer self-certified mortgages. These are mortgages which require little or no documentation and verification. Instead, they allow you to make your own case regarding how much income you have, how much in assets you have and how you will be able to afford your mortgage. In essence, they take your word for it. Because of the recent sub-prime mortgage fallout, self-certified mortgage lenders are somewhat harder to find than they were five years ago. You may need to seek the help of a mortgage broker in order to locate a reputable lender who works with sub-prime borrowers.

Repair Your Credit

This is certainly not a quick fix, but it may be the most cost effective method for obtaining a mortgage. Rather than paying the premium for a bad credit mortgage, you may wish to meet the lender halfway by improving your credit report where you can. Review your credit report for any inaccuracies, lingering delinquencies or other negative items. Redress as many as you can and be diligent about paying on time for at least six months leading up to your mortgage application. Pay down as much debt as you can and avoid opening any new credit accounts. These measures can vastly decrease the costs of a bad credit mortgage. While you may not get as competitive rates as a prime borrower might receive, every point on your credit score counts.

Conclusion

Bad credit mortgages are far more complex and difficult to obtain than a typical mortgage. Because of this, it is important that you remain educated and updated. Avoid situations that are obviously too good to be true and follow your instincts. For more tips on how to get a mortgage with bad credit, check out some of our sub-prime mortgage blog posts below:

What is FHA Foreclosure Assistance?
Getting a Mortgage - What If I Lose my Job?
What is Prohibit Predatory Lending Act for?
Mortgage without a Down Payment
How to Protect your Property from Foreclosure
Remortgaging with Bad Credit
First-time Homebuyers Tax Credit Extension: Good or Bad News for the Real Estate Market?
Bad Credit Borrowers Beware: Six Signs of Predatory Lending