Bad Credit Mortgage: Getting to the Truth
When you have bad credit mortgage shopping can be difficult to say the least. Lenders have a set of guidelines that they follow when determining eligibility for a home loan and those rules are even tighter for a person or persons with a history of not paying their bills on time. Bad credit mortgages while more difficult to obtain are not impossible, but along with having to provided more documentation, a borrower will usually have to pay additional fees and a higher interest rate in order to make the bad credit mortgage loan package more attractive to an investor. If you find yourself in this situation, it is often best to seek out a mortgage broker who specializes in bad credit mortgage loans. This ensures that you will have a professional who has access to secondary lenders and investors who specialize in making bad credit home mortgages.
How To Get a Mortgage With Bad Credit – Prepare in Advance
Before shopping for a mortgage, you must prepare a number of things, regardless of your credit situation. Gather the following items before you visit any broker or lender:
- Your signed income tax forms for the last two years
- Obtain proof of your last two months income from all sources (pay check stubs work very well)
- Former jobs (if not employed for more than two years at your current job)
- Addresses for the last 5 years
- Any other bank or investment account statements
All mortgage lenders use a form called a Ten-O-three (1003 Uniform Residential Loan Application). This form, and the information it contains when completed, is the basis for determining your eligibility for a home loan. Most brokers fill this loan out for you by asking questions and entering it into a computer program. Once a broker has your name, address, birth date and social security number, the broker can request a mortgage credit report. This credit check usually takes less than a minute to obtain. However, once this report is returned the broker can quickly determine your eligibility for a home loan. A broker who concentrates on helping people obtain bad credit home loans will also know what options are available for you at this point.
Bad Credit Mortage Broker and Lenders – Utilizing Specialists
A broker or lender who specializes in helping others obtain a bad credit home mortgage may often charge additional fees to the borrower in order to compensate them for their time. Searching for a lender for someone with bad credit can be time consuming and even once an appropriate lender is found there is no guarantee that the loan will be approved and brokers are normally paid only when loans are completed. However, if you are asked for an upfront fee from a broker it is wise to ask for referrals from satisfied clients and ask about their application to closed loan ratio. It they take more than 4 applications to every 1 closed loan then you the broker may not be the one for you as they only close 25% of the loans that they initiate. A broker with a better closed loan ratio means that the broker works hard enough to earn any money that you pay. It is also wise to request that any upfront money be applied to any loan fees that are charged when the loan is closed. Remember, you are negotiating for a bad credit mortgage and all fees are negotiable.
Your credit scores will also affect the final interest rate you pay. Lower credit scores usually mean a higher interest rate in order to offset the risk a lender takes. However, there are a number of state and federal government backed programs that can reduce this interest rate. Here again, a broker who specializes in working with bad credit mortgage loans will understand this and be aware of what is available.
How Long Does It Take to Close A Bad Credit Home Mortgage?
The all time worst answer you will get here is, “It depends.” In the best of all scenarios, a normal home loan can be closed within 2 weeks. However, when credit issues appear, it may require as much as 90 days or more. Often a lender will require additional information such as:
- Additional years of income tax forms from you or requested directly from the IRS
- Signed statements of current income from your employer
- Verification of rents or payments made to property owners or other mortgage companies
- Statements explaining the reason for late payments
- A cosigner for the loan (they will have to credit approved)
- Higher Down Payment, or proof that the down payment is seasoned or a gift from a qualified person
- Additional forms depending on the type of loan requested
A lending company can request all of these additional items, and possibly more, at any time during the process. A good broker should be able to anticipate these requests after first evaluating your application. So knowing what your broker should ask can help you, the borrower evaluate the broker that you have chosen.
In order to obtain a bad credit mortgage, you will need to be patient and flexible during the process. You will also have to be truthful with the broker, regardless of how embarrassing it may be to discuss your current financial problems. The broker is there to help and the lender will require a lot of personal and private information in order to determine your eligibility for a home loan. Perseverance is the only way to get on the right track when searching for a bad credit mortgage.
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