Basics of Bad Credit Mortgage Loans – Be Careful

It will probably come as no surprise to you that the average credit score has been dropping as the economy is suffering. A lot of people are just “getting by” and go about their lives in as normal of a fashion as they can. However, this can be a big problem if they are interested in buying a home. There is some good news, though, in the form of bad credit mortgage loans. These second chance or subprime loans are usually given to borrowers who have a credit score below 680.

If any of the following apply to you, then there is a good chance that you will need to consider bad credit mortgage loans if you want to purchase a home. Missing more than two payments within the past year; having an eviction, foreclosure or judgment filed against you; have a high debt to income ratio; declared bankruptcy within the past 7 years; or have other evidence of being statistically likely to default on a loan.

The 30 year mortgage first gained popularity as a way of buying a home during the Great Depression of the 1930s. Since that time, the percentage of people who own their homes has increased to the two-thirds it is today. While 30 year mortgages are still used, a lot of other financial instruments came along to help fill the demand of so many people wanting to buy homes of their own.

Now, you should be aware that bad credit mortgage loans can make the otherwise impossible prospect of buying a home possible, but they also come with a price. For example, because you are considered a higher credit risk, lenders will reduce their loss potential by charging additional fees and higher interest rates. You will usually have to get extra insurance to further protect the lender’s position in the deal.

Once you know these facts, the next natural thing to wonder is how to improve your credit score. This makes a lot of sense, because that is one of the first things lenders will look at. Generally speaking, the higher your credit score, the better the terms you will be able to get. Even a few points can make the difference between getting regular loans or bad credit mortgage loans.

You can start moving things in the right direction by getting free copies of all three of your credit reports. Look them over for any discrepancies. Report any mistakes you find to the appropriate agency. They have to either confirm the information in question is accurate within 30 days, or remove the item from your report. After that, be sure to pay all of your bills on time. Also, do whatever you can to reduce the total amount you owe as your debt to income ratio counts for a large part of your score.

Another thing you can do is go online to compare various bad credit mortgage loans. This is a convenient way to get several offers and see which ones are best for you.

Category: Bad Credits