Many individuals have been able to use bad credit mortgages over the past decade to fulfill their dream of becoming homeowners, but it is no secret that lenders have implemented much stricter lending guidelines as a result of the recent housing crisis. The high incidence of foreclosures found in many areas of the country as lead an overwhelming majority of financial institutions and bad credit loan mortgage companies to stop lending to any borrower that is perceived to be risky. Although sub-prime mortgages historically were classified as such due to a credit score of 620 or below, many lenders now consider the bottom tier lending category to start with credit ratings as high as 650 to 680. A lot of consumers have simply given up on their dreams of home ownership, but the good news is that there are still some lenders that provide mortgages for bad credit individuals. In order to secure such a loan, prospective borrowers need to understand what a lending organization will require and the factors that may affect funding.
A lot of the lenders have been able to utilize government grants and bailouts to alleviate the problems caused by delinquencies and foreclosures, so they are still in business and able to offer new loans. However, there are a whole new wave of restrictions that have been placed on banks and other lenders and it is important to realize that there may not be as much leniency available for certain negative factors. The bad credit home mortgages that are offered will be scrutinized by regulators, and as a result there will be fairly uniform application requirements and guidelines. One of the most important things for a future homeowner to provide is an excellent rental payment record. Companies that offer bad credit mortgage loans to individuals with bad credit will often accept individuals that have delinquencies on their report, but a key indicator of whether a person will be able to pay their mortgage is their current behavior with a landlord. Landlord recommendation letters are often required as a part of the poor credit home mortgage application process.
The only other difference in applying for a regular loan and a bad credit home mortgage loan is that the lender may request additional supporting documentation from banks, other creditors, and references. A letter may be required from a person’s employer that will attest to the stability of their job and income. Bank statements may be necessary to prove responsible management of funds. Letters of explanation may be requested if there are any items being reported by the credit bureau that a bad credit mortgage lender would like more information on. If there are any particular reasons for a poor credit score, such as medical issues, these should be shared with the possible lender as this can help paint an adequate picture to the underwriter. If all of these items are readily available, the chance of being approved for one of the many bad credit mortgages available is much higher.
A home’s worth is going to be very important in the final decision and it is a fact that many bad credit mortgages will only lend a portion of the estimated total value of the property. Although most people believe that a down payment is always necessary, the actual case is that it typically depends on the value of the home in relation to the loan amount. If a house is worth much more than the amount of the loan, the L-T-V ratio or loan to value ratio is considered to be favorable. Many poor credit mortgages will require that the L-T-V ratio be no more than 70-75% and some companies may like to see it even lower.
The new home buyer and existing homeowner buying tax rebates should be utilized to their fullest extent and can provide a down payment if needed. Other programs may be available in certain areas and there is a strong chance that many of the higher risk loans will actually be guaranteed by a government subsidy available to certain lenders. A professional can help advise in specific circumstances and often is able to provide good news for individuals desiring the opportunity to own a home.
Shopping around for bad credit mortgages can be an incredibly time consuming and arduous task if it is not done properly, so it is imperative that consumers use a loan matching service. Filling out a short online form is often all that is required to initiate contact with several different lenders that offer mortgages to bad credit customers. All applications should be filled out truthfully in an effort to build a relationship based on trust. The process may seem to be a fair amount of work, but it is actually much easier than it seems and the end result can be a new home.
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