In many ways, a mortgage for someone with bad credit is very similar to any other mortgage. The primary difference being that a person with poor credit will not be able to get as good of loan terms as someone with great credit. Late payments, not paying debts, credit cards, or other financial obligations all can contribute to a bad credit score.
Big Brother is Always Watching
Late and skipped payments get reported to all the major credit reporting agencies, where they impact the score you are given. Sometimes, these unpaid debts can lead to other financial difficulties, including bankruptcy, which can also make getting a loan more difficult. While it can become quite difficult, it is almost never impossible to get a home loan. However, you need to prepare yourself. You will not get great options and will likely have to settle for a high-interest rate.
What is the Definition of a Bad Credit Home Loan?
A bad credit home loan can also be known by a poor credit mortgage, non-standard mortgage, adverse credit mortgage, credit-impaired mortgage, or sub-prime mortgage. One thing that many consumers currently face is borrowing more money than necessary, causing them to live past their means. Make sure you take a good, hard, look at your financial situation, as one day you will have to pay back your debts or suffer the many consequences of a poor credit score. Many times people take out a large mortgage so they can buy the home of their dreams, but don’t understand the impact this can have on them financially. You will have to examine your expenses and income in great detail.
Are They Difficult To Get?
Since many places are currently in a recession, banks have become more discerning and it has become more difficult to get a loan with bad credit. This can be considered both a good and bad thing. In the past, it was much easier to become qualified for a home loan, and many people took out mortgages that they wouldn’t have normally qualified for had lending standards been stricter. This is a major factor in the current economic recession. Many people who should never had been qualified got approved for home loans they couldn’t afford to keep paying. This led many banks to have stricter lending standards, making it more difficult for someone with bad credit to get a mortgage. Credit markets have become frozen with banks unwilling to lend to anyone without a great credit history.
What Lending Policies Will I Encounter?
You need to remember that buying a home with poor credit means that banks consider your loan high risk. This means you may have to come up with a higher initial down payment and may have to settle for a higher interest rate than someone with good credit. You may want to think about waiting to buy a home and instead, work on improving your credit score. If you work hard and create a detailed action plan, you can often significantly improve your credit score within three years. That may seem like a long time to wait, however, it could save you thousands of dollars in interest payments when you qualify for a better rate.