Finding A Bad Credit Mortgage
Bad credit loan mortgages or non-status mortgages are purposely
intended to serve people with a bad credit history. According to
a recent survey, one fifth of all adults are not able to qualify
for a standard mortgage as a result of a previous or current bad
financial situation.
Credit history is based on information retrieved from sources
including Public records such as electoral roll information,
court judgments and bankruptcies; and Information provided by
financial institutions and other lenders such as banks that
provide credit accounts and lending facilities.
In order to calculate the potential risk in providing loans to
the person, most lenders use independent credit reference
agencies to gather and assemble this information since they are
permitted by law to review a mortgagee's credit report before
granting approval.
Bad credit rating usually results from failure to pay off
outstanding debts or other credit payments on time, due to
factors such as outstanding rent or mortgage arrears, county
court judgments (CCJ) or bankruptcy. There are also other
reasons that can result in a bad credit record which include:
1. Foreclosure 2. Heavy medical bills 3. Settlements arising due
to Judgments /divorce 4. Multiple credit cards 5. IRS debt
Bad credit mortgage is designed for people who are unable to
take out a mortgage from high-end mortgage providers. However,
there are several providers who are willing to take a risk and
provide loans for individuals with bad credit ratings, but at a
higher rate or lower maximum amount.
Normally, a bad credit mortgage loan has an introductory
interest rate that is fixed for 2-3 years, which is
substantially higher that the rate pertaining to a conventional
30 year fixed rate loan. This is due to the extra risk the
lender has to take, because with a bad credit, the borrower's
probability of default on the home load is higher than someone
with good credit. However, after the initial period, the
interest rate on a bad credit mortgage will adjust periodically.
There are also a few factors that most lenders of bad credit
loan mortgages will look into, before granting the loan mortgage
to people with bad credit history. This includes:
1. Employment history and income stability 2. Current monthly
debt 3. Value of the property and 4. Down payment
Since loan requests from people with bad credit do not fit under
the standard underwriting guidelines, fees charged by lenders on
bad credit mortgage loans are also significantly higher than
those charged in a conventional or standard home loan. This can
range from 1% to 6% of the total loan amount.
Since individuals who get a bad credit mortgage usually do so
mainly because they want to put their credit back into good
standing, or as an opportunity to clean up credit history, the
higher interest rate need not necessarily lasts for 30 years.
Additionally, if the monthly loan payments are in time for two
consecutive years, the bad credit mortgage can be refinanced
with a conventional loan at a much lower interest rate.