Determining what makes a person become labelled a bad credit borrower is really a matter of a few factors. Lenders will consider their credit score. They are looking for the highest score possible or as close to the highest score. They will also look at the amount of the loan requested and how it compares to the value of the home.
They are wanting a home that is worth more than or equal to the amount being requested. Next they consider the person debt to income ratio. This will tell them if the borrower can afford the loan.
Once all of this information is tabulated the lender gets a clear picture of the borrowers financial state. They should be able to determine how risky this loan would be and they will base their decision upon it.
Once you have determined you are considered a bad credit borrower then you should start looking specifically for bad credit mortgages. You will want to shop around. You will want to read all the terms and conditions. You should understand that a bad credit mortgage is very costly and you will end up paying more interest and fees than with a traditional loan.
Make sure to shop around. There are plenty of good lenders, but there are also those who will take advantage of the vulnerable position you are in. Watch out for excessive fees and extremely high interest rates, which are signals of a bad lender. As long as you shop around, though, you should have no problems avoiding bad lenders.
It is also a very good idea to approach a number of large and reputable mortgage brokers. Such brokers have access to a large number of lenders that are not available on the high street to general public, but only through intermediaries and brokers.
Many such lenders specialise in finance for people that have a less than perfect credit history. These lenders are ideal. Just make sure you find out upfront how much the broker is going to charge.
There is a way to benefit from a bad credit mortgage. Once you obtain the mortgage and you make regular, steady payments you will be building credit. You will be able to establish a better credit rating and possibly refinance for a better loan. Using a bad credit mortgage to your advantage is a great thing that can really help you out in the long run.
Bad credit mortgages should be seen as a way to rebuild credit. They may cost a lot upfront, but in the end they are well worth it. For many people a bad credit mortgage is the only way they can afford to buy a home. It is the only way they can get funding, so they use it to their advantage, build up a good payment history and then try for a cheaper, traditional loan down the road.
You cannot really blame them for doing this because if you are honest with yourself, the fact that you have a bad record of payments indicates that you are a poor risk. This type of mortgage is also termed ?sub prime? and we all know about the recent collapse of the sub prime mortgage industry, don't we? That occurred because too many mortgage lenders offered sub prime mortgages to high risk customers, and when they stopped paying the lenders ran out of cash to meet their own obligations.
However, in spite of that, there are still companies prepared to take the risk, and there are ways that you can reduce your payments to a manageable level and still be able to purchase a house. That, after all, is what a mortgage is for. Among these ways is mortgage repair, and while it is possible for you to go some way towards achieving that using proprietary software systems, the best way is to get a mortgage and keep up with the payments. Do that for two or three years without missing a payment and your credit score will start to go up.
The problem you have, though, is that your mortgage rate is going to be higher than the standard rate of interest, so you will have to pay more than those can afford it more. It's a bit paradoxical isn't it, but that's the way the cookie crumbles. That means your repayments will also be higher. What you must do is to make sure that the repayments terms you agree to are easily affordable, because you will not find it easy to change them mid-term.
Nor will you be allowed to miss payments. Bad credit mortgages are monitored closely and you only have to miss one payment and they will be on the phone threatening action if you don't bring it up to date. You have just missed one payment, so how on earth are you going to make two payments next month? The answer in a nutshell? ? you can't! So make sure you can easily afford the payments.
If we ignore the actual sum borrowed, because that depends on the price of the house you are buying, here are three things you can do to help:
1. Pay as high a deposit as you can afford. The greater your deposit the less the loan, and so the smaller the repayments. Scrape together as much as you can as a down-payment and reduce your mortgage loan. Most companies will ask for 5% ? 10%, but some will give you a 100% bad credit mortgage. If you are offered that don't be tempted to take it if you have enough spare cash for the deposit.
It's easy to be misled by the thought of a car or a nice vacation instead of using the money as a deposit, but make the deposit even if you are offered a 100% loan. You will thank yourself for it later. The higher your deposit, the lower the interest rate some companies will offer and you will have less capital to pay back.
2. Choose a longer rather than a shorter repayment term. Bad credit mortgages are offered over any term up to 25 or 30 years. If you can get 20 years then go for it. You will pay more in interest if you borrow over 20 years rather than 10 or 15, but your repayments will be a good bit less and more affordable. It is better to comfortably pay over 20 years than to struggle for about 8, default and then lose your home. OK, you pay more interest, but you still have your home, and the repayments will seem less as the years go by and you earn more money.
3. Arrange to pay your mortgage by standing order or direct debit. Then ask the mortgage company to date the payments to be the same as your pay day. Whether you are paid weekly or monthly, it doesn't matter. Your repayments will be monthly so arrange them for as near as possible to your pay day. If you always get paid on the 1st of the month, for example, arrange the direct debit to be paid on that day. If it is the last day, then make them for the 1st of every month, since regular payments are paid on a specific date each month.
By doing that your account will always have money in when the mortgage is due. A lot of defaulters pay their mortgage towards the end of the month, a few days before their monthly salary is paid into their bank account. By then there is nothing left in the account, and the payment defaults. It is sometimes very easy to either spend too much or to forget other regular payments, so arrange your mortgage be paid ASAP after your salary or wages are lodged in your account so that this cannot happen.
Bad credit mortgages are to be regarded as your ?Last Chance Saloon? and you must keep up the payments or you will be taken to court, and never get credit again. However, if you treat them with care, they will work for you, not only by allowing you to purchase your home, but also by helping to repair your credit record.
Both James Copper & Peter Nisbet are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
James Copper has sinced written about articles on various topics from Finances, Mortgage and Mortgage. James Copper writes on all areas of finance and investment. He works for Any Loans who source and. James Copper's top article generates over 1220000 views. to your Favourites.
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