A Bad Credit Mortgage

By Susan M. Keenan

In an ideal world, everyone has a good credit history, so they are capable of acquiring a mortgage with excellent terms.  Unfortunately, circumstances in life, loss of employment, death in the family, or exorbitant medical costs, often lead to a bad credit rating.  A bad credit history may begin with a few late payments or a few missed payments.  It might continue with a bankruptcy or even a foreclosure.  This, in turn, leads to the inability of the borrower to acquire a traditional mortgage loan. 

Few lenders want to take on a bad credit risk without some kind of guarantee that their financial rights will be protected.  Typically, this protection comes in the form of higher fees and higher interest rates.  Certain lenders, referred to as sub-prime lenders, specialize in providing loans to individuals with less than stellar credit histories.

In addition to higher interest rates charged on the borrowed money, typically, sub-prime loans require higher mortgage insurance held on the loan as well.  All of these factors lead to the simple fact that individuals who have bad credit histories will end up paying more for their loans than individuals with good credit histories.  Therefore, it is imperative to conduct a bit of research to locate the best available loan terms. 

Sub-prime lenders typically offer non-conventional loans to borrowers whose bad credit histories prevent them from qualifying for a traditional loan.  However, even sub-prime lenders rate their potential clients according to risk factors.  A potential borrower who falls into the top of the list will receive better terms than someone who falls into the bottom of the list.

Lenders often review an individual’s credit report in order to determine his or her credit worthiness.  A credit report reflects an individual’s financial activity including, but not limited to, income, debt, and payment habits.  Free annual credit reports are available to consumers from one of the three major credit bureaus, Experian, Equifax, and Trans Union.  Acquiring as copy of your credit report and reviewing it for accuracy is always an excellent idea.

Although it is better to maintain a good credit history in the first place, steps can be taken to improve your credit history before you apply for a loan.  If you don’t already have one, acquire a permanent job.  Pay off any small balances on credit card accounts or loans as soon as possible.  Once that has been accomplished, you can begin to decrease the larger debts that you have.

Before applying for a loan while you have a bad credit rating, do a bit of research to discover the available loan terms.  Sub-prime lenders generally require less stringent qualifications than a mainstream lender.  However, it doesn’t hurt to check with a mainstream lender, especially if you haven’t hit rock bottom with bad credit.

A bad credit history and a bad credit score may be all that it takes to prevent a potential borrower from acquiring a loan from the average bank or lending agency.  However, loans are available for borrowers who have bad credit, as long as they are willing to pay a bit more in interest and fees.

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