Believe it or not, you don't have to have perfect credit to get a mortgage.Funds for borrowers for bad credit mortgage loans come from Wall Street type investors rather than banks. Local and neighborhood banks and credit unions are usually too conservative in their business practices to participate in bad credit or Subprime mortgage lending.
Most neighborhood banks do not offer mortgage programs for bad credit borrowers. An experienced mortgage broker is often the best source for Bad Credit or Sub Prime loans. Most mortgage brokers have business relationships with mortgage bankers that only specialized in mortgage loans. Unlike neighborhood banks, whose core business operations focus on checking and savings accounts, these Subprime mortgage lenders' business model focuses only on making mortgage loans.
A Bad Credit Mortgage can be the first step in fixing your credit. It's like a fresh start to take cash out to pay of credit card bills and perform any other debt consolidation, getting lower payments overall each month and reducing them all into one low monthly payment, which is easy to remember to pay on time each month. Paying your mortgage on time each month will improve your credit scores and you can eventually refinance your bad credit mortgage once your credit has improved and qualify for a low fixed rate or powerful pay option arm a year or two down the road.
Most of the Banks will lend on a borrower if you have above 500 credit score. There are a handful of banks/hard money lenders that will lend on sub500 fico.
While it is true that a Subprime loan will carry a higher interest rate. It does not mean you are stuck with the loan forever. Hopefully you will improve your credit score to the point where you can refinance at a more favorable rate.
When it comes to bad credit the best thing you can do is be honest. Talk with the broker and explain what happened. This will allow the broker to deal with underwriters more effectively. Just because the credit is damaged doesn't disqualify you from a great loan!
To keep payments reasonable it is typical to be put into a 2 or 3 year ARM to keep your payments where you would like and after credit is re-established then we can put you into a fixed rate mortgage if that is what you are looking for.
A Mortgage Broker who specializes in helping those who have filed Bankruptcy or have other credit challenges will usually have relationships with a handful of lenders they use on a regular basis. This means they can place your loan faster and with less problems.
A "bad credit" borrower may get a mortgage in spite of conforming guidelines, and it may be well known that their interest rate and fees may be higher; still other limitations or restrictions may be imposed. Loan to value, the amount up to 100% of the value of the home, may be reduced with poor credit history. Pre pay penalties may be used to protect the short term investment of the investor in offering a higher risk loan. Property types may be restricted to single-family primary residences, etc. These limitations may exist with many sub prime lenders, but still there always seems to be another lender out there that will offer a particular niche program that will meet the individual needs of a borrower, such as allow 100% financing down to a 580 risk score. While some limitations may still apply, individuals with tarnished or bad credit history do not have to be disenfranchised from gaining the benefits of owning a home.
These type of loans are usually called "Subprime" loans out in the market place. Really all it means is that is it a loan for those who have had some financial struggles in their life. Just because you've missed a few payments does not mean you can't qualify for a loan.
There may be a higher interest rate or fees associated with a Subprime loan, due to the higher risk the lender is making.
The mortgage industry has evolved over time allowing more options for getting approved for a mortgage. Even if you have "BAD CREDIT". Bankruptcy?, Foreclosure?, Late payments? Defaults?, Collections?, , there is still a program out there for you. Do not assume you cannot qualify. It only takes a few minutes to apply. Find out for sure if you can qualify or not.
The rapid growth of the mortgage industry has led to the creation of programs that can help those with even the most challenged credit situations.
Having poor credit does not disqualify you from getting a mortgage, it only increases the risk that a lender might have in giving you a loan. Talk to a mortgage professional if you are unsure about your ability to obtain a mortgage.
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