Bad Credit Mortgage Loans

Bad Credit Mortgage Loans

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Bad Credit Mortgage Loans: Credit scores are a very important factor when a person has to buy a mortgage. Good credit ratings improve the chances of getting a mortgage; while bad credit ratings may destroy the chances. However, today there are many choices for people with bad credit scores to get their mortgages. In fact, some mortgage companies specialize in selling mortgages to people with bad credit scores. These lending companies are also called sub-prime lenders.

The trustworthiness of a person is measured according to FICO scores. The range of a FICO score lies between 300 and 850. numbers above 720 are considered to be good, while numbers below 620 are considered to be bad. These people come under the group called sub-primes.

People may have bad credit due to a number of reasons. It may be due to loss in business, leading to delay of payments or even bankruptcy. There may be a medical disability or physical problem due to any other cause. People apprehended in illegal cases also gain bad credit standing, as they cannot keep up their payments. However, bad credit no longer deters people from getting their homes.

One of the ways is to go for a home equity loan. If the person has been making some payments on his or her home for a certain period of time, then equity on the home gets built up. This wealth can be used as collateral to buy a second debt. Home refinancing is another choice; a person can exchange his or her first mortgage with a later mortgage which may possibly have lower interest rates.

Sub-prime loans have the downside of high interest rates. Higher interest rates help the lenders to acquire more payments from the borrowers and hence reduce their losses in case of failure. There may be other harsh limits like shorter payback times and the necessity of a down payment to be paid ahead. In fact, the down payment becomes a gift in disguise. If the mortgage borrower has saved enough for a down payment, then it lowers the responsibilities on the mortgage, which can be paid off faster.

Though it is tough for people with bad credit to get homes, it is not impossible. Bad credit buyers must shop around for mortgages and scout for lower interest rates and other rewards. Prepayment is generally not allowed on a bad credit mortgage, as lenders do not allow bad credit users to wiggle out of their loans that easily. Hence, a market poll to find out who offers the lowest prepayment penalties would be helpful.

However, the best choice for a person with bad credit is to improve their credit score. This is a long, arduous process, often doable with patience and a sense of duty. Credit scores can be improved by making regular payments, and removing delinquencies by planning for their payments.

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