A mortgage loan is possibly the most important type of loan a person can get because it allows you to pay for a respectable place to live. While it is certainly easier to get such a loan if your credit is good, people with poor credit – with a score of 600 or below – can still get loans. However, those who do so must often submit to less-than-ideal terms such as high interest rates and high monthly payments. If this is the case for you, make sure to bear a few important issues in mind.
Repair Your Credit
Before you go looking for bad credit mortgage loans, inspect your credit history carefully. Verify every negative item on your credit history and make sure that these items are legitimate. In some cases, you may find items that you can contest. If you contest items and the creditors are unable to prove that they are legitimate, the credit bureaus must remove those items from your credit history. Make sure to repeat this process for each of the three main credit bureaus. (To learn more about how to fix an error on your credit report, see How To Fix A Credit Report Error.)
Even though you have bad credit, as you go looking for a mortgage loan remember that you are the customer. You have every reason to shop around and look for the best deal. If one lender is willing to extend a loan to you, the chances are that another one probably will as well – and that other lender just might offer you a better deal. Do not fall into the trap of letting lenders convince you that they are helping you and that you should be happy with whatever they offer. If they do not want you to compare their terms to those of other lenders, there is probably a reason for this. (To learn more about what you should ask potential mortgage lenders, see 8 Questions To Ask Your Lender About A Home Mortgage Loan.)
Compare Rates And Closing Costs
The main thing people look at when it comes to getting bad credit loans is the interest rate. However, in making your comparisons between various lenders’ offers, the interest rate is not the only thing to consider. One important thing to consider is the matter of closing fees. Different lenders may charge different closing fees and substantial differences may be vital issues for you to consider. Another matter is penalties. If you are ever one day late on a payment, will you be assessed a fee? How much would this fee be? Finally, some lenders may reward those who make timely payments by lowering their interest rates. The possibility of getting your rate lowered can be a very important issue when it comes to bad credit mortgages which usually have high interest rates in the beginning. (For more information about closing costs and fees, see Important Closing Costs And Fees To Consider When Buying A House.)
Avoid Mortgage Fraud
Mortgage fraud is a crime in which opportunistic individuals offer mortgage agreements with predatory terms that are not clearly revealed to the borrower, often resulting in default and foreclosure. A common example of mortgage fraud is the use of no-money-down offers to trick people into agreeing to monthly payments that are too high. Some mortgage fraud occurs because the perpetrator changes the mortgage agreement after the borrower has signed it. For this reason, the FBI urges potential borrowers not to sign blank documents or documents with blank lines. Another example of mortgage fraud is when realtors or mortgage brokers encourage borrowers to put false information on their loan applications, usually by overstating their income. The lenders themselves usually do whatever they can to avoid foreclosures, as foreclosures tend to result in a lot of headaches and loss of potential revenue. For this reason, the perpetrators of mortgage fraud are usually not the lenders themselves, but intermediary parties who make their money from the lender up-front upon issuance of the loan. Pay close attention to how your realtor or mortgage broker does things, and make sure that he or she is not giving you or the lender false information.
Look Into Refinancing
Mortgage loans are agreements that result in a decades-long string of payments. For this reason, people who are seeking bad credit mortgage loans are often hesitant to agree to the seemingly exorbitant interest rates that usually come with them. However, one thing that you must remember is that you do not necessarily need to maintain the same lender for the entirety of the mortgage payment term. Even if your initial lender is not impressed by your ability to make timely payments and do other things to gradually improve your credit score, other lenders will be impressed. For this reason, mid-way through your payment term, if your credit score has improved, you may be able to refinance your loan with another lender who offers you more agreeable terms. That lender will pay off the initial lender with the understanding that you will make the remainder of the payments to it. Arrangements like this often make bad credit loans quite worthwhile, serving as a stepping stone between a rocky financial past and a bright future in a better home.
If you are looking for a home and have less than stellar credit, keep these tips in mind. They could end up saving you some serious money in the long run.