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Mortgage Options for People with Bad Credit

Posted by  on Apr 16, 2009
 
Mortgage Options for People with Bad Credit

Whatever the source of your bad credit, there are many solutions to obtaining a home loan. There are many other people in the same negative financial situation as you, and lenders realize this. The bad credit rating may stick with you for a long time, but it does not mean that you cannot become a homeowner.

What You Should Do to Help your Credit

Just because you cannot make dramatic leaps and bounds with your credit score does not mean you should not attempt to improve your rating. A person can contact reporting agencies and look over their credit report to see if everything is accurate, if it is not you should immediately contact the agency to fix it. Also a person should start paying every bill as promptly as possible, especially credit card bills to avoid accruing more debt.

Mortgages with High Interest Rates

Lenders will see a bad credit rating as a warning that a person will not be as reliable in paying off their loan as others. To ensure they will make money, they charge high interest rates so even if a loan is defaulted on it will not be a total loss for them. Because of this every month’s payment will be higher than for a person with good credit. Although this will cost more money in the long run and probably lead to a longer loan term, if a borrower can pay each month this will be a good way to rebuild credit as well as own a home. After a couple of years refinancing is a very viable option for lowering monthly payments as well as decreasing the overall amount of money owed.

No Money Down Mortgages

Lenders are offering these loans more frequently as a way to entice people with little money to buy a home as opposed to renting and wasting away there finances. The usual down payment will be included in the overall value of the loan but will be forced to be paid off first before the principal of the loan can start to be tackled. These mortgages will come with a higher interest rate as well due to the fact that no money had to be paid initially in order to obtain the mortgage.

Sub Prime Mortgages and Plans

This is the name for high-interest rate mortgages that are given to “high-risk” borrowers. This simply means that people with lower credit have to pay higher rates in order to ensure the lender a secure investment. These loans come in many different forms, including paying down only the interest for a set amount of time before being able to tackle the principal. The lender also can establish a guideline for which the borrower can pick the amount they pay each month, often extending the amount of the loan up to 50 years.
If you have a bad credit history you can still obtain a home loan and become a home buyer, but the best option overall is to simply take measures to improve your credit, especially by paying off current debt and paying all bills on time.

Past credit history can be a perfect way to redeem your credit score and blaze the path to a new page of history in your financial freedom.

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