Bad Credit Mortgage Loans

Do Bad Credit Mortgage Loans Exist?

For many people with bad credit, there is some feeling that the housing market is mostly closed off. People with bad credit are often told that they have no possible recourse and that mortgage companies will avoid them like the plague. The truth of the matter is that a mortgage with bad credit is not impossible. This kind of bad credit home loans is out there, but it requires some interesting maneuvering on the part of potential homeowner. Banks are much more careful about giving out bad credit mortgage loans today, and they require certain elements to be met by consumers.

Using employment status as a means of securing financing

For a person with bad credit, the emphasis is shifted. They are no longer able to point to the strength of their financial history. Instead, these individuals are forced to point out other strengths in their application. Credit history is good for assuring the creditor that prompt payment is likely each month. For those who can't use their credit history to make this happen, it becomes important to show some change in financial status. A stable job that provides plenty of income to make the payments is a great start, and it can open to the door to better options.

Down payment questions

One of the things that consumers are finding about the bad credit loan office is that it requires a much larger down payment. Larger than average down payments serve two different purposes. For one, they show a new financial security on the part of the potential homeowner. Secondly, they act as insurance for the lender. A large down payment will make the monthly payments smaller and thus more manageable. For potential home buyers who are plagued by an ugly credit history, a down payment of 20% or greater is an excellent first step.

How bad is too bad?

Some might be wondering where the line is drawn for a mortgage with bad credit. Can someone's credit be bad enough that the lender will immediately disqualify them from consideration? For the most part, the line is drawn very far on the bad side. Those with bankruptcies in their pasts, for instance, will face scrutiny in high form. Many times, the lender will require that individuals wait a period of two or more years before they apply for a mortgage. Additionally, there will be a high price paid on a bad credit mortgage if it is granted.

Banks must protect themselves somehow, so they attempt to do this by charging higher interest rates and having more restrictive terms on poor credit mortgages. They will attempt to insure themselves by charging as much as 3% or 4% more for these particular loans. This brings up the question of whether poor credit mortgage loans are really worth it. Do they really provide individuals with a chance? The answer is one that only the prospective homeowner can answer. For some, the added premium is too much to bear. For others, home ownership is something worthy of the extra cost.