Bad Credit Mortgage Loans

Mortgage companies are sometimes reluctant to award a home loan to those with bad credit.  There are however, mortgage lenders who specifically work with someone who has bad credit.  A bad credit mortgage can also be known as a poor credit mortgage, adverse credit mortgage, sub-prime mortgage and a non-conforming mortgage.

A bad credit mortgage is different in many ways from a traditional mortgage.  Getting approved for bad credit mortgage loan will most often mean that you will be paying higher interest rates, higher closing cost fees, and a larger down payment.  These things are why it is very important to shop around and do your research to make sure you are getting the best rates that are possible for your situation.  There are many mortgage lenders that are willing to provide mortgage loans to those with bad credit.  There are also many lenders who will still provide a mortgage loan with low interest rates depending on how bad your credit is.

Mortgage lenders who lend to those with bad credit most often love to get those who have not researched the market to find what is offered and find the best deal.  If you do not shop around and do your research, you most often will be taken advantage of and not receive the best possible deal.  Because of your bad credit rating and income status you may find that it will be best to allow a broker to work to find your best loan.  If so, use much caution and please make double sure that the broker can be trusted.  Using a broker can make you very vulnerable to increased charges, fees and interest rates.

Some of the mortgage lenders who help those with bad credit will attach a pre-payment penalty to the contract.  This would mean that you would have to keep the loan at least for the pre-payment penalty length of time.  For example, if your loan had a pre-payment penalty of 1 year, you would have to pay the high interest rates for at least 1 year before paying off the loan.  Always research and find the loans with the shortest pre-payment terms or no pre-payment terms so you can work toward paying off the loan quicker without paying a penalty. 

You will need to decide whether or not you want an interest only payment or a payment that consists of both interest and principal amounts.  An interest only payment is usually a lower payment and works better for those on a tighter budget.  Paying an interest only payment will not decrease the loan amount and most often will increase the balance because you are not paying any on the principle. 

Most people choose the payment that includes both the principle and the interest.  This type payment helps to decrease the amount you owe because part of the payment is being applied to the principle amount and not just the interest.  The payments may be a little more, but may be more flexible than interest only payments and allows you to decrease your debt at the same time.

You will also need to decide on what type of interest you will want to pay.  There is a variable interest rate and a fixed interest rate.  With variable interest rates, your monthly payment will increase or decrease based on what the national interest rates are at the time of your payment.  A fixed interest rate means that your interest rate never changes; therefore your payments would remain the same from month to month throughout the term of your mortgage loan.

When getting ready to apply for a mortgage loan, there are some things that you will need to have on hand.  You most likely will need the last couple of your paycheck stubs, your W-2 and last year’s tax returns.  The lender will also want to know about your assets.  Make a list of your checking and savings account balances, stocks, life insurance policies, real estate, vehicles and any other item that would be considered an asset.  It is also very important to know what your credit looks like before allowing the lender to pull the information.  Therefore, if there is an error on your report, you can address it and get it corrected ahead of time.

Mortgage lenders look at several things when you apply for a mortgage loan.  They will view your credit history, employment history, your income and how much debt you currently have.  The amount of cash that you have on hand is also very important.  If you have enough cash on hand to pay a large down payment, the lender may consider you less of a risk because you will have more invested in the property and will be less likely to default on the loan. 

The most important thing to do when trying to find the best mortgage loan for your needs, is to make sure that you will be able to make the payments and make them on time.  Doing so will improve your credit over time! 

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