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Bad Credit Loans - They Are Still Available. Yes, The Market Has Changed - But For The Better!

The term subprime (a.k.a. bad credit loans) has been in the news a lot lately and it has scared a lot of people with bad credit and convinced them that they will never experience the American dream of owning their own home. If that is you, well cheer up – we have some good news for you!

According to an article in USA Today bad credit loans grew an average of 25% a year from 1994 to 2006. And even outpaced the rate of growth of prime mortgages!

This growth is not without some controversy. It has received a lot of praise from both government and the private industry as well. The Federal Reserve Governor, Edward Gramlich, stated recently that bad credit loans helped push homeownership to record levels. But what seems to have been driving this were Adjustable Rate Mortgages (ARM’s) which allowed people to buy a home without one penny down at an extremely low rate – and of course the old carrot on the stick bait – that they could refinance later. However when the time came to re-finance there were other roadblocks – like the over-inflated home values. Bankers claim they couldn’t see this coming, but even a blind man should have been able to (in our humble opinion).

There are consumer groups currently working with the bad credit loans institutions to make sure they deliver credit (at fair rates) to borrowers who cannot get regular financing. They will also make sure people are not sold a bigger loan than they can afford or that their home value is not over-inflated. 

So what does this mean if you are one of the thousands of Americans that needs a bad credit mortgage loan? Yes, the market is changing and you may have to do some extra work with a lender to get a home loan, but you aren’t out of the market yet. All these protections are being put in place to protect you. To keep you from purchasing an over-inflated home, or getting a rate that’s going to shift in a few years. So don’t worry about the changing market for bad credit loans, because it’s changing for the better!

When you begin your process of looking for a mortgage one thing to do is work with a lender that knows your situation and can help you get the best rate based on your current credit. Major lenders like CitiBank or HFC are good because they specialize in bad credit loans, so they know how to help you get approved.

A number of years ago when I had another business I decided to apply for a SBA loan for small businesses. A friend of mine put me in touch with a specialist (the industry calls them Packagers) who did all the paperwork. This firm knew exactly what the SBA would be looking for, and I got the loan without a single glitch. That's what bad credit mortgage lenders like CitiBank or HFC will for you.

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When you apply, and you should, have your finances well documented. Have copies of your most recent pay stubs, and any other income that you earn. Make up a list of your current credit debt. All credit cards, car payments, etc. They are going to look at what you earn (gross) vs. what you pay out each month. Also, have copies of your most recent tax returns to prove your prior years income. These are things they will ask for, so be organized and have it ready for them.

You need to be aware that you will probably be pitched the adjustable rate mortgage (ARM) with a very low starting rate as one option. When it comes to bad credit loans almost every lender will offer this because it gives you the lowest possible payments. But this is exactly the loan you shouldn’t have.

It may sound appealing because the monthly payments are so low, but remember, all good things must come to an end. When the 3, 5 or 7 years is up your mortgage will inflate by quite a bit, and you should NEVER gamble on future income! You never know where you’ll be financially in 3 to 7 years. So unless you’re psychic it is always better to look for a home that costs a little bit less, but has an affordable fixed-rate mortgage.

The market is changing for bad credit loans, but this is actually a good thing! Protections are now in place to protect you from predatory lenders and you can rest assured that upon approval you will have a fair mortgage rate and that your home won’t be over-inflated in value. So go for it! Apply and see if you can become a homeowner today!

Reference: USA Today/Sue Kirchhoff