Borrowing home loans with less than perfect credit history

Bad Credit Mortgage

Buying home with bad credit

Owning a home is an aspiration of many Americans & Canadians. It is a goal that millions of people are actively working toward in some way or another. One of the pit stops on the road to the dream of owning a home is obtaining a mortgage. Unless you have tens of thousands of dollars at your disposal, you will have to obtain a mortgage before you can purchase a home. If you have a few shady spots in your financial past, it may hinder your ability to obtain a mortgage and your goal of owning a home. The good news is that there are many lenders who are willing to work with you, even if you have less than perfect credit.

People with bad credit or subprime borrowers

Borrowers with less than ideal credit (from the lender’s perspective) are known in the real estate industry as sub-prime borrowers. This means you are not the typical ideal candidate for receiving a mortgage. You may be a sub-prime borrower if any of the following are true: your FICO score is less than 660; you have been delinquent on payments in the past two years; you have had a foreclosure or charge-off in the past two years; or you currently have more than half your income in debt.

Know your credit situation and approach the right mortgage lender

Knowing whether or not you are a sub-prime borrower prepares you for your mortgage search by letting you know which lenders you should approach. As a borrower with bad credit, you should make mortgage applications with those banks that have a specialty in lending to sub-prime borrowers. Since these lenders are experienced in working with mortgage borrowers that do not have the best of credit, you have a better chance of being approved for a mortgage.

Higher interest rates with bad credit

Depending on your credit history, you might have a hard time finding a mortgage with low interest rate. Most banks charge a higher interest rate to sub-prime borrowers, or people with bad credit, because there is an increased risk associated with lending to a borrower with a history of delinquent payments. This is not to say that you cannot find a mortgage with low interest when you have bad credit, only that you should be prepared for the possibility of not finding one.

Negotiating with loan officer by explaining past and current situation to get approved or get low interest rate in case of bad credit & mortgage costs.

When you apply for a mortgage at a bank, explain your credit history to the loan officer. Extenuating circumstances may have affected your inability to pay your bills in the past. Letting your loan officer know the history surrounding your credit blemishes can make the difference in getting approved or denied for a mortgage. If you are in a better financial position now than you were in the past, use it to negotiate a low interest rate with the loan officer. In your negotiations for a low interest rate, you must be sure that the mortgage lender is not decreasing your interest rate, while increasing other loan costs to make up for it. Request a detailed list of the costs associated with the loan each time a change is made to one or more aspects of the loan.

Mortgage applications denied because of bad credit

The FDIC sets certain rules by which mortgage lenders must abide. In the event that you are not approved for a mortgage, the lender is required to let you know the reason(s) that you were not approved.

Fix bad credit

Don’t let a mortgage denial keep you from purchasing your dream home. Instead, use the information provided by the lender to improve your credit. You might not be able to erase the mistakes of your past, but you can show that you no longer pose a risk to banks. Take action based on information you receive from your lender and work to create a credit history in the present that overshadows your mistakes from the past.