Bad Credit Mortgages
Surfing the web for Bad Credit Mortgages can be confusing especially with the mixed information. This page will assist you to understand what bad credit mortgages really are and how they can benefit you. You will see that these types of mortgages can really be useful for borrowers with credit impairments.
What are Bad credit mortgages?
As the name suggests, they are mortgages for people with bad credit. Bad credit can come in many forms however it typically means adverse or poor history on your credit file. An adverse mark can be anything from an unpaid phone bill to a default on a major loan. It can also be for “part 9″ borrowers or ex bankrupts.
When to apply for Bad Credit Mortgages?
When you apply for a home loan with traditional lenders they are likely to conduct a credit search and if your credit is bad, they typically will decline your approval. This is where Bad Credit Mortgages come into the equation.
Who provides Bad Credit Mortgages?
Not banks, private lenders, alternate funders or credit unions. It’s mainly non-bank lenders and private lenders. They often look beyond your bad credit and look at other criteria including the real estate security provided for the loan, the repayment strategy and so on. Some private lenders will not even bother conducting a credit check. Each lenders have their own criteria.
Who can apply for Bad Credit Mortgages?
The key criterion is quite simple, you need to have sufficient equity in your property and you need to have an exit plan to repay the finance (The max loan you can usually get up to is normally 65% to 75% of the real estate value, this is known as the loan to value ratio).
With this style of loan, the normal loan terms are from 1 month to 24 months. Bad credit mortgages are not to be used as long term finance solutions as they are more costly than traditional types of funding.
What differences are there between bad credit home loans and conventional home loans?
There are a number of subtle differences between conventional loans and bad credit home loans. These are mostly due to the risks that the lender takes loaning money to a person with bad credit.
Bad credit home loans often have a higher interest rate.
The borrower sometimes needs more equity to qualify for a bad credit home loan.
The borrower may need to pay more for a down payment to qualify for a bad credit home loan.
Bad credit home loans are generally low document.
What should you do before applying for bad credit home loans?
You should obtain your credit report before applying for a bad credit home loan. If you know what your Veda score rating is, you will be better prepared for what to expect. Then you can start the application process.
What are bad credit mortgage brokers and lenders?
Bad credit mortgage brokers are very similar to standard mortgage brokers, only they specialise in mortgages for people with bad credit. Although the mortgage is similar, there are some differences between a bad credit mortgage and a traditional mortgage. Bad credit brokers will often send you to bad credit lenders and know the market better.
What can you expect when using bad credit mortgage brokers and lenders?
Bad credit is understandable.
More equity in the property is required.
You may need a higher down payment.
There’s a lower loan to value ratio requirement.
Most bad credit mortgage brokers want you to have a plan for paying the borrowed amount back.
You may end up with a higher interest rate.
There are many reasons people use bad credit mortgage brokers. People who have bad credit can still get a mortgage, but they need to go through a different type of broker or channel. If you pay the mortgage on time and in full, it helps rebuild your credit. This can make it easier to get a loan later. Large purchases, purchasing new property and starting a business all require financing. Bad credit mortgage brokers help with this financing.
Why consider a higher rate bad credit mortgage?
In some cases, a bad credit mortgage is the only way to purchase real estate or property. You may know you can afford it however your history is holding you back. It is important to remember that even this type of mortgage improves your credit when you pay on time and pay the loan off.
What are the advantages of a bad credit home loan?
There are many advantages to a bad credit home loan including:
Flexible documentation – Banks often require a lot of documentation, but with a bad credit home loan, you may not need as many documents in order to apply.
Property ownership – The ability to own real estate despite your credit rating.
Rebuilding your credit – Having a home loan and paying it off rebuilds your credit.
Chance to build equity – After you pay some of the loan off, you will have equity in your property.
What are the disadvantages of getting a bad credit home loan?
As we mentioned, there are a few disadvantages of bad credit home loans. Since the lenders takes a higher risk, they charge more. This makes the loan more expensive so you need to understand the rates and fees. A way to combat these expenses is to pay off your loan early, if it is only for the short term, it can be manageable. Another disadvantage of a bad credit home loan is that you need to put more money down or have more equity. It may not be the most desirable criteria, but it’s one that will make it possible for you to obtain a loan with poor credit.
Bad credit loans do not need to be stressful. Just because you have past issues doesn’t mean you will necessarily default in the future. You need to be able to show why a default won’t happen again.
How can I increase my chances of approval?
Be upfront about your history and do not miss anything out. If you know you have bad history list the bad credit or defaults, provide an explanation on each default and a reason why it won’t happen again. Maybe you went through unemployment or an illness etc. these situations are not uncommon.
What are lenders criteria?
Depending on how bad your credit history is and what the purpose of the loan you are applying, will depend on the criteria and also what options you have available. For example an unsecured personal loan is unlikely to be approved however a secured personal or business loan has much more of a chance given the lower risk to the Lender (some business loan products do not require a credit search at all).
What do they look for?
It is also important that your credit file is repaired or in the process of being repaird. For example a default noted as unpaid looks worse than a paid default and a outstanding judgement against you will not increase your chances unless you are in the process of paying these.
Divorce or sickness – you may have been through a divorce in the past and bills were unpaid given the stressful time in your life.
Adolescence – we have all been young and make mistakes. Perhaps credit was not your key priority or you are now more educated on credit.
Business cash-flow or start up capital- you have a good business operating or a good business plan however have been decline by the banks due to your past credit issues. With security, you can get a loan calculated on the value of the security property.