Posts Tagged Bad Credit Mortgage
How to Learn from your Past Credit Mistakes: Obtaining a Bankruptcy Mortgage
Posted by Owen in Bad Credit Mortgages, Bankruptcy on October 29, 2009
It goes without saying, sometimes it’s hard to believe you can ever recoup what you’ve lost when you file bankruptcy. Nevertheless, it is possible to obtain a bankruptcy mortgage. You just have to understand the process in order to obtain a bankruptcy mortgage loan and do what you can to regain your hold financially. Let’s look at how filing bankruptcy affects your status as far as obtaining any mortgage loans after bankruptcy.
Chapter 13 vs. Chapter 7 Bankruptcy
Much depends on whether you filed Chapter 13 or Chapter 7 Bankruptcy as to how you will proceed in obtaining any future bankruptcy mortgage loans. For example, when you file Chapter 13 Bankruptcy you typically can salvage your home from foreclosure’s wrecking ball. Therefore, you are indeed a candidate for any future bankruptcy home mortgage.
However, if you opt for filing Chapter 7 Bankruptcy proceedings, because you are fully discharged of your debts, in all likelihood, you may not be able to keep any real estate you own as well. In order for this not to happen, a “Reaffirmation Agreement” is usually filed. This way you can work with the mortgagor to pay off your debt on your property.
Given the above information, what do you have to do to obtain a bankruptcy home mortgage?
Re-establish Your Credit Standing
Any of the bankruptcy mortgages offer someone who is a sub-prime borrower the opportunity to make restitution for their past credit mistakes. Therefore, the first thing you must concentrate on is to re-establish your credit so a lender who is considering you for such a bad credit mortgage has the confidence in your ability to pay back the debt. Make it a point then to make regular payments on the debts you currently have so you can build your credit to a level that can justify securing a loan.
Formulate a Budget
To get into the practice of making regular payments, you will have to form a budgetary plan and make every effort to stick to it. Don’t fall back into the pattern that got you into a bad credit situation in the first place. Learn from your past credit mistakes and you can obtain a bankruptcy mortgage that will help you gain a financial record that can’t be erased.
Start Saving
With a bankruptcy history, you will have to realize you won’t be afforded the same privileges you once were from a credit standpoint. Therefore, it’s important to set up a savings plan and learn to discipline yourself financially. By doing so, you can indeed obtain a bankruptcy mortgage loan that will give you the leeway to correct your past credit mistakes and learn to be more prudent in financial matters overall.
The FHA: A Good Resource
Probably the best source to look at with respect to any bankruptcy mortgage loans is the FHA. The FHA has many programs that can assist in helping people with bankruptcy as a part of their financial history.
Review your Credit Report
Learn to save and keep up-to-date on what your credit report says. If there are any inaccuracies, it’s essential you make strides to remove them or correct them right away. By doing so, you will always be on top of your financial situation and therefore in better control of your budget.
Stay Focused
Probably the three most important areas to concentrate on with respect to qualifying for any of the bankruptcy mortgage loans out there are income, your credit score and the down payment. If you start learning to save regularly, paying your debts on a timely basis and making sure that your credit report reflects favorably on you, you can make a new start and see the day when you will overcome any budgetary woes and once again have financial security.
photo credit: n0nick
Bad Credit Loans | Part Two: Mortgage Loans for People with Bad Credit
Posted by Owen in Bad Credit Mortgages on September 8, 2009
The purchase of a home is often the largest financial transaction any of us will make. Whether you have good credit or bad credit, it makes sense that you should approach this kind of purchase ready to do a lot of research and spend some time understanding all the details to get the best home at the best price and with the best terms.
Overview
To find a mortgage loan for people with bad credit, you may need to be a bit more dedicated in your search. There are a large variety of programs out there – and that is part of the problem. There are varying degrees of bad credit. You want to get the best possible deal you can qualify for – not just any bad credit mortgage. You may even discover that you don’t need a bad credit mortgage. You want to go into the process prepared. That way you can ask the right questions, find the right loan product and hopefully get an interest rate you can live with.
Types of Loans
With the recent crackdown on subprime mortgages, it will take a little more digging to find a good loan product. It will be important to research as much as you can on the types of bad credit mortgages.
- ARM Bad Credit Mortgages – Most of the mortgage loans for people with bad credit are adjustable rate mortgages. These can be helpful to get into a loan at a lower payment in the first few years. However you must be careful to know before you sign your paperwork how much the mortgage can adjust. You don’t want your payment to double after the first few years of your loan. Look for 2/28 and 3/27 loans when researching this type of loan.
- Longer term fixed mortgages – There are some programs that offer a fixed rate loan but at a longer term like 40 or 50 years. These loans have the added security of knowing that your payment will not increase. However, because the term is longer you will end up paying well over an extra $100,000 over the life of the loan on an average mortgage amount.
- Low document mortgages – If you do not have a lengthy credit history or if you have other documentation issues, you may be able to find a “stated income” or “low doc” loan. These will typically have higher interest rates but can get you into a house and help you begin earning equity.
Mortgage Lenders for People with Bad Credit
Once you have a fairly good idea of the kind of loan that you think will fit your needs, it’s time to look for a lender or broker to help you find the best terms. Since your lender or broker will be your advocate, make sure you can find someone you feel comfortable working with and someone who will keep in contact with you throughout the process. Rely on referrals from friends and family or your real estate agent. You can also shop for a loan online if you feel very confident in the kind of loan you need and a good estimate of the kind of interest rates you should be getting for your credit score.
Regardless of how you find your broker, make sure you get a 2nd and 3rd opinion. Always shop around.
Preparing for the Application
Have all your documentation together ahead of time – bank statements, pay stubs, income tax returns and W2’s. Make sure to document any credit history issues so the lender can understand the reason for the late payments or other issues. Be as honest and straightforward as you can. You may also wish to provide a list of any credit references not on your credit report. For example, if you rented an apartment for a long time and always paid on time and that does not appear on the report, have your landlord write a letter of reference that you can include in your application.
Summary
Knowing your credit score and the kind of loan that will fit you the best is half the battle. When you know in advance what kind of product will work best for you, you will be able to comparison shop more easily and not be swayed by a quick pre-approval.
In the next article, we will be discussing car loans for people with bad credit.
Bad Credit Loans | Part Three: Car Loans for People with Bad Credit
For reference, the entire series of articles is listed below.
Bad Credit Loans | Part One: Loans for People with Bad Credit
Bad Credit Loans | Part Two: Mortgage Loans for People with Bad Credit
Bad Credit Loans | Part Three: Car Loans for People with Bad Credit
Bad Credit Loans| Part Four: Personal Loans for People with Bad Credit
Bad Credit Loans| Part Five: Bad Credit Refinance
Ins and Outs of a Bad Credit Mortgage | Part Six: Getting the Most out of Mortgages for Bad Credit
Posted by Owen in Bad Credit Mortgages on September 4, 2009
In order to get the most out of your mortgage for bad credit, be sure to follow the guidelines in the earlier 5 articles. In summary:
- Know your credit score – the more prepared you can be going in, the better you will be able to negotiate and find the right loan.
- Before you start shopping for a house, know how much you can afford. That way you won’t fall in love with a property that is more expensive than your pocketbook will allow.
- Investigate the types of mortgage loans for bad credit that are out there – and determine the right type of loan. If you can do this before you talk to your mortgage broker it may be easier to keep from getting swayed by another loan product.
- Find a good mortgage lenders for bad credit by talking with friends and family, and also check with your real estate agent. Build up a good rapport with the broker – they will become your advocate.
Once you have your mortgage – there are some things you can do to get the most out of it.
Start working on repairing your credit. Refer to article two about credit scores where we discuss what kinds of things impact your credit and how. Make sure to correct any credit report errors, start paying down existing credit cards or lines of credit.- Make sure to always pay your bills on time. Many people find it helpful to set up automatic bill payments for the minimum amount so that payments are made without having to think about it.
- Put in some elbow grease and improve the value of your home. It will be easier to get refinanced with better terms if you have built up equity in your home. Keep on top of routine maintenance, make some cosmetic improvements and keep records of everything you do to improve the property.
Mortgage loans for people with bad credit have received a lot of negative attention in the media recently. Don’t let anyone make you feel bad about your situation. We all have gone through rough financial times.
Remember, there is nothing wrong with mortgages for people with bad credit – they are stepping stones to get you into a home of your own, help you start building equity, and give you an opportunity to rebuild your credit and eventually qualify for a mortgage with better terms.
I hope you’ve found this series on bad credit mortgages to be helpful – if you have, I would love to hear from you.
Here is the list of all the articles in this series:
Ins and Outs of a Bad Credit Mortgage | Part One: What are Bad Credit Mortgages?
Ins and Outs of a Bad Credit Mortgage | Part Two: Should I Repair my Credit?
Ins and Outs of a Bad Credit Mortgage | Part One: How Much of a Bad Credit Mortgage Loan can you Qualify For?
Ins and Outs of a Bad Credit Mortgage | Part Four: Types of Mortgages for People with Bad Credit
Ins and Outs of a Bad Credit Mortgage | Part Five: Finding the Best Bad Credit Mortgage Lenders
Ins and Outs of a Bad Credit Mortgage | Part Six: Getting the Most out of Mortgages for Bad Credit
Ins and Outs of a Bad Credit Mortgage | Part Two: Should I Repair my Credit?
Posted by Owen in Bad Credit Mortgages, Credit Repair on September 4, 2009
The decision of whether or not to repair your credit before applying for a mortgage or a mortgage refinance is a difficult one. Obviously, the better your credit, the better deal you will be able to qualify for. However, sometimes there is only so much repair that can be done and it can be quite time consuming. If you need to get into a house right away, or you have a deadline to refinance, you may need to compromise.
Get your Credit Report
You have to be informed. The first thing to do is to pull your credit report. You can do this through one of the major credit reporting bureaus, such as Equifax, Experian or TransUnion. If you have been denied credit recently, you may be able to qualify for a free credit report. There are also other agencies out there who specialize in free credit reports. When you do get your credit, be sure to select the type that comes with your credit scores – and if you can get scores from all 3 credit agencies so much the better.
Know your Credit Score
Some bad credit mortgage lenders go with your high credit score, others go with a blended rate. That is why it is important to know what your scores are.
What do credit scores mean?
720 and above: Excellent credit. You will probably be able to get the best rates available – and you should certainly shop around to get the best deal. You will most likely be able to borrow more and you may not have to purchase mortgage insurance.
675 – 719: This range of scores is considered to be an Average-Good credit rating. You may not be able to get the best rates, but you should have little trouble qualifying for a good loan. You will most likely have an interest rate about half a percent above that of someone with excellent credit.
620 – 674: This range of scores is considered to be below average. Expect to pay about two percent more on your loan than if you had excellent credit. You will likely need to provide more documentation and you will
Under 620: This is considered bad credit and you will most likely need to shop for subprime or bad credit mortgages.
How are credit score calculated?
- Payment history – 35% or so is made up of how well you pay your bills on time
- How much you owe – 30% of the score is determined by what % of your credit limits you owe on
- Length of your credit history – 15% or so of the score is dependent on how long you’ve been using credit.
- New Credit – 10% of your score will be based on your new credit. New credit applications and approved credit can lower your score. If you know you are going to be borrowing, try to do all your applications in a short period of time to avoid lowering your credit score.
- Other – 10% of the score will be made up of other factors, like variety of credit sources for example. The more different types of credit you have – mortgages, car loans, credit cards, student loans – the better your score will be.
Before you meet with a mortgage broker, document any reasons for late payments, overlimit issues and so forth. The more prepared you are before your meeting with the lender, the better. They may be able to negotiate with the bank on your behalf to get you a better rate.
Now that you have all this information, you may be thinking, “Yes, but tell me how to repair my credit.” When I had credit issues, the first thing I did to repair my credit report was to look for inaccuracies on all 3 reports. If you find mistakes, write to the credit bureau explaining the error. They have only 30 days to reply – if they don’t respond with proof of the problem, they must remove the item from your credit report. Repairing my credit wasn’t easy, part of it was writing to the agencies, but part of it was understanding how the score is calculated and starting to change my spending habits. Over time I was able to repair my credit rating and I am now able to qualify for much better loans. But I started out with credit well below 600 – and my first mortgage was a bad credit mortgage. However, I was able to buy a house and build equity as I was fixing my credit.
In the next article, we will discuss determining how much you can afford.
Here is a list of all the articles in this series:
Ins and Outs of a Bad Credit Mortgage | Part One: What are Bad Credit Mortgages?
Ins and Outs of a Bad Credit Mortgage | Part Two: Should I Repair my Credit?
Ins and Outs of a Bad Credit Mortgage | Part Three: How Much of a Bad Credit Mortgage Loan can you Qualify For?
Ins and Outs of a Bad Credit Mortgage | Part Four: Types of Mortgages for People with Bad Credit
Ins and Outs of a Bad Credit Mortgage | Part Five: Finding the Best Bad Credit Mortgage Lenders
Ins and Outs of a Bad Credit Mortgage | Part Six: Getting the Most out of Mortgages for Bad Credit
photo credit: Casey Serin
Do You Need a Bad Credit Mortgage?
Posted by Owen in Bad Credit Mortgages on August 29, 2009
If you’ve had a few financial bumps in the road it can be easy to assume that your credit is substantially damaged. Until you know the facts about your credit report and score and until you investigate the qualification guidelines of each type of loan, be careful about heading straight for a bad credit mortgage loan. When you decide to shop for a mortgage, be careful not to pre-qualify yourself. You may be able to qualify for better rates and terms than you expect – saving yourself thousands of dollars over the life of your loan.
What is bad credit? If your credit score is above 600, possibly even 580, you may be able to qualify for a conventional mortgage. Before you assume you need to look for a bad credit mortgage or a subprime mortgage, you may want to investigate the various loan options available on the market.
Bad Credit Mortgage Lenders
Remember that there are different types of lenders. There are bad credit mortgage lenders, generally banks, and then there are bad credit mortgage brokers, usually independent firms that shop for the best deals among lenders. Not all lenders or brokers will offer all of the types of mortgages, bad credit or otherwise. It’s in your best interest to look at a few lenders, or a few brokers and try to qualify for more than one category before making your final decision. Ask each company you deal with about the types of loans they are able to offer. Remember they are unlikely to suggest a competing product to you if they do not carry it – even if it is a better program that you may be able to qualify for. It pays to shop around.
Alternatives to Bad Credit Mortgages
Here is a summary of some of the types of loans you may want to consider qualifying for.
Conventional Mortgages through Fannie Mae
Generally the least expensive types of mortgages, Fannie Mae provides good interest rates to those who qualify and have a good down payment.
Details and Qualifications:
- Your debt to income ratio must be no more than 31%.This means that what you pay in monthly debt payments cannot be more than 31% of your income each month.
- 2 years employment history
- Lender must be an approved Fannie Mae / Freddie Mac lender
- As of March, 2009 the highest amount you can borrow is $417,000
- The larger the down payment, the lower the interest rate
- A credit score over 580 is required
- Your property will be appraised once qualification looks likely – the appraiser will need to be certified by Fannie Mae.
- One of the least expensive loan options in terms of interest rates and closing costs.
FHA Mortgage Loans
One of the most popular mortgage types, FHA loans provide flexibility – but require a minimum credit score of 620.
Details and Qualifications:
- Requires an FHA-approved mortgage lender
- Minimum credit score of 620
- Minimum of 2 years employment history
- Stable or increasing income over the past 2 years
- No more than two thirty-day late payments on your credit report in the past two years.
- Bankruptcies must be 2 years old and your credit report must show good credit since then.
- Any foreclosure must be 3 years old or older with good credit since.
- The mortgage payment applying for must be 30% or less of your total monthly income.
- Many different FHA programs available including 100% financing options
Subprime / Bad Credit Mortgages
If your credit score is below 600, you may want to consider shopping for a subprime or bad credit mortgage financing. These programs are becoming more difficult to find, with the changing housing market and mortgage loan regulations – but they are out there.
Details and Qualifications:
- Generally a credit score of 620 or below
- Low down payment programs are available
- Typically higher interest rates
- Higher closing costs
- Employment and income requirements vary
Summary
Check on your credit score before you apply for a loan. Shop the various types of loans, and talk to a few different mortgage brokers or mortgage lenders. If you aren’t able to qualify for a conventional mortgage, shop several subprime mortgage lenders – don’t just settle for the first bad credit mortgage you qualify for. Once you have your mortgage, remember to use your time wisely – work to rebuild your credit within the first few years so you can refinance with better terms.