Getting a Mortgage with Bad Credit

October 13, 2008 by · 5 Comments
Filed under: Blog 

Is it possible to get a loan even with a low credit rating? With today’s mortgage and loan trends, a bad credit mortgage is absolutely possible.

In the past, applying for a loan involved a thorough check up on your credit history and income background. If your history was less than perfect or if your income was not that high or both, then your application for a loan was instantly rejected. This practice limited the number of people who could apply for a loan.

Today’s market has adopted more flexible methods. Special mortgages make it possible for people with low credit scores to still apply for a loan and get approved. When applying for one of these loans, no pre-qualification process is involved. Lenders who offer poor credit mortgages as part of their loan offering give their customers a chance to redeem themselves. With this special loan, your credit history is nothing more than history and you still get your money’s worth.

There are several lenders who offer these programs. When you choose one, make sure that you’ve learned everything that you need to know about them. More often than not, bad credit mortgages sound too good to be true so it’s best if you keep an eye out for the catch.

Higher Interest Rates

Poor credit mortgages are usually characterized by high interest rates. Lenders charge borrowers higher interest rates as compensation for the risk they take. Like it or not, borrowers who don’t have decent credit records are loan risks and are viewed as such by lending companies.

In exchange for letting these types of customers get mortgage loans, higher interest rates are charged. This helps protect the lender should something happen and he has to foreclose on the property.

Discount Points

Discount points on higher risk mortgages are common. A discount point is calculated by using a percentage of the total borrowed amount. High risk borrowers are charged higher discount points, usually four to five points. Those with good credit may not pay these points or they do but only a very low percentage. With bad credit loans, however, points may go as high as ten, although going this high is not a common practice and is against federal law. It all boils down to insurance for the lending company. Lending companies want to make sure that they’re getting their money back from their higher risk customers.

Larger Down Payments

The amount of down payment required for borrowers on risky loans is larger compared to types. In exchange for ignoring the customer’s credit history, lenders require larger down payments towards the total purchase price. Borrowers may not be able to afford the upfront price of poor credit mortgages. If, in any case, you can afford the down payment required, one of these loans might even prove a good thing for you. Since the down payment you make takes up a considerable portion of your purchase price, this can reduce your monthly payments.

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