Bad Credit Mortgage Loans Are Available - Here's Some Helpful Tips On Your Home Purchase!
These days most lenders say they "specialize" in bad credit mortgage loans. Which is why it's important to understand the loan process and watch out for predatory lenders. Before you consider refinancing here are some helpful tips.
Do Your Math
In other words, don’t take out more than you absolutely need to. Don’t borrow the max just because you can! Especially in a bad credit mortgage loan situation. The average person stays in one home less than 5 years. And using your built up equity is one way to help you “upgrade” to that next home when you sell. A good rule of thumb is to keep at least 20% of the equity in your home.
Know What Your Home Is Worth Right Now
If homes in your area are going for $20,000 more than you are currently financing, then don’t let a lender talk you into refinancing, taking out a 2nd mortgage or home equity line of credit for $30,000! A bad credit mortgage loan is probably going to have a slightly higher than normal interest rate so don't borrow more than you need to!
Keep in mind that our lives change constantly! Don’t bank on job security or the fact that “you’re getting that raise in January.” Nobody really knows where they will be tomorrow! Take it from me, I’ve been laid off 4 times in 12 years and never once saw it coming! Life hits you fast so don’t borrow on your future!
Know Your Credit Score
Last year (before I started this site) I contacted a lender I heard on the radio. He pulled my credit and proceeded to tell me my score was 100 points lower than I knew it was!
How did I know? I had personally checked my credit score BEFORE I called! When I confronted him with it he tried to tell me that scores can fluctuate due to high credit balances and proceeded to read off some of my higher credit balances!
Needless to say I ran away from that lender, FAST! If you don't understand your score then seek some credit education. Your score may not be as bad as you think and a bad credit mortgage loan might just turn into a good credit mortgage loan!
It's a good idea to pull your credit every 6 to 12 months. This way you will always know your current score, and you can fix any errors before applying for any type of credit.
Fix Your Credit
OK. You’ve pulled your credit and see some errors. Now what? If the errors are small you can challenge them yourself.
Simply write a letter to the credit bureau stating why the entry is a mistake and provide any documentation you have to prove it. The credit bureau will give the other company 30 days to respond (most companies usually don’t bother). If they don’t then the mistake will be automatically removed.
If you have bigger mistakes, or possible identity theft, then contact a professional service like, Lexington Law to help you get the entries removed.
Remember, mortgage companies base 75% of their decision on your credit report, and it's estimated that 79% of all credit reports contain errors! So if you're dealing with a bad credit mortgage loan situation, it's better not to leave things to chance. Know what’s on your credit report and get it fixed if it's wrong!
Don’t Pay Excessive Fees
When it comes to bad credit mortgage loans, many lenders will try to convince you that you're lucky to get any loan at all, and that fees are just part of the deal. But that's not true, so don't fall for this scam!
Fees are one way that a lender can boost their profits. But remember, those fees are coming out of the equity in your home and you are paying for them every month!
Don’t let a bad credit mortgage lender charge you $150 or more for a credit check that costs them $15 or less. Also, watch out for documentation fees and broker fees. These are supposed fees charged for paperwork processing. But in reality it’s just a way for them to collect an exorbitant amount of money for very little work!
When talking to the lender ask them how many “points” they are charging. A point is 1% of the total loan amount. It’s also a term most people don’t understand, so when they hear “plus 2 points” they don’t understand that on a $20,000 loan this translates into $4,000 in fees!
Challenge any excessive fees, and also contact one or more bad credit mortgage loan lenders to compare their fees.
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Take Out The Right Loan
Talk to the lender about whether refinancing, taking out a home equity line of credit, or a 2nd mortgage is right for you.
In some instances your current interest rate may be really good. So refinancing to a higher rate just to get equity isn’t the wisest choice. But in other instances your credit score may have come up since you purchased and you can qualify for a lower interest rate. If that’s the case then go for it!
A Home Equity Line Of Credit (HELOC) is just that, a credit line, and the interest rate can be a little higher. Plus when you get a HELOC the interest rate is only fixed for 3 years, then it will fluctuate depending on the current market.
A 2nd mortgage can capitalize on your equity while leaving that great interest rate on your current mortgage alone. This is an especially good option if you're seeking a bad credit mortgage loan, because the interest rate is probably going to be a little higher than the interest rate on your current mortgage.
But unlike a HELOC where you are given “checks” that you can use at your discretion to pay off your bills (or not use if you don’t need the full amount of the credit line), a 2nd mortgage gives you a fixed amount and sets the payments for 30 years.
However, if you’re planning on moving in 3 to 5 years then this might work for you because the monthly bills are lower than a HELOC and you’ll be paying it off when you sell your home.
Regardless of your credit, we have great lenders who specifically work with bad credit mortgage loans. Many mortgage lenders will only work with good credit, or premium credit. It's important that the lender you work with understands your situation and can find a loan to fit your needs, regardless of credit!
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For Sale By Owner - www.fsboamerica.org
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