About Mortgages for People With a Bad Credit History
Borrowers with poor or bad credit scores (scores below 700) may think that obtaining a mortgage to finance the purchase or refinance of a home is impossible. While borrowers with bad credit scores may pay different interest rates or different terms than those borrowers with good credit, there are various mortgage options available to bad credit borrowers. Lenders that cater to bad credit borrowers are often referred to as B-Credit or subprime Lenders.
Even though credit scores do play a starring role in a credit decision, it is not the only factor a lender considers. Lenders also consider the amount of the purchase, the amount of the cash down payment, employment history and other factors when making a lending decision.
Other People Are Reading
-
Interest Rates
-
Local banks as well as national lenders provide mortgages to those borrowers who have bad credit. The difference may be in the interest rate the borrower is charged on the mortgage loan. Since a good credit borrower (those with scores above 700) are less of a risk to the lender, they tend to receive mortgages with lower interest rates than borrowers with bad credit. So be prepared to pay a slightly higher interest rate on your mortgage than you would expect to pay if you had good credit.
Terms
-
The term (or length) of the mortgage for bad credit borrowers may be different than good credit borrowers as well. A lender may limit the types of mortgage financing available to you as a bad credit borrower. This may mean you have to take a 30-year fixed rate mortgage over a 15-year fixed or an adjustable rate mortgage over a fixed rate mortgage.
-
Down Payments
-
The mortgage lender may also not be willing to lend you as much on a mortgage as they would a good credit borrower. This means you may be required to put more money down on the purchase of a home or may be prohibited from accessing the equity you've built in the home with a refinance.
Contingencies
-
Lenders also have the right to place other contingencies that a borrower has to meet in order to qualify for the loan. This may include having to pay down or pay off certain debts or agreeing to automatic payment of your mortgage out of your checking account each month. These contingencies must be met by the borrower before the lender agrees to establish the mortgage.
Refinances
-
Despite the initial terms and interest rate on the mortgage, you always have the option of refinancing at a later date. This is especially true as you are able to increase your credit score over time. After you have had the mortgage with your existing lender for one-year and after you have religiously made your mortgage payments on time every month, apply for a refinance with the same lender or a different lender that offers you a lower interest rate, a lower monthly payment and terms and conditions that are more beneficial to you.
-
