Obtain a mortgage even with bad credit
By Justin
Hunter
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.