All About Finances

When you apply for a mortgage, you should know that the lender has two things in mind:  your ability to pay, and your willingness to pay.  Your ability to pay is simply a measurement of your current savings, income, and expenses.  If you do not display at least a rudimentary ability to pay your mortgage, most lenders will not even look at you, particularly in a tough credit environment.  Your willingness to pay is determined by your credit rating and nothing else.  A low credit rating signals to a prospective lender that you may be less than willing to pay off your obligations.  Still, if you have an ability to pay, it is still possible to receive a mortgage.  There are a number of measures you can take to improve your chance of receiving a mortgage right now.

Firstly, the process of receiving a mortgage takes several months.  What this means is that you can act today to increase your credit score.  To do this is as simple as taking out modest secured loans.  This ‘trick’ has been around for a long time, but it entails taking out a secured loan with one bank, then using the proceeds to take out a secured loan with another bank.  You then make modest interest payments on these loans.  In return, the banks will report to the credit bureaus that you are current on your debts.  Although this seems unrelated to getting a mortgage, this is in fact one of the very best things you can to do help yourself if you have bad credit.  Boosting your credit score in this manner significantly improves the chance that you will receive a mortgage, but also will lower the interest rate you will end up paying and improve the terms of the loan you will receive.  Even a small boost in your credit score will save you literally thousands of tens of thousands of dollars over the life of your mortgage.

Another thing that can help with mortgages for people with bad credit history is to look into receiving a government guarantee or government insurance on your mortgage.  Most countries have a housing or urban development administrative bureau that provides these services.  Most people do not understand that getting a government guarantee or federal insurance can be the difference between receiving a high-interest short-term adjustable rate mortgage and a steady, low-interest thirty year fixed rate mortgage.  Without getting into the specific math, all that you need to know is that a standard mortgage is much, much cheaper than any form of adjustable rate mortgage.

With all of that said, it is still possible to receive a mortgage (however poor the terms) if you have bad credit.  Here’s how:

First, approach a bank you have a relationship with, particularly if it is local to your area.  Banks that you have done business with for a while are much more likely to issue a loan to you, regardless of your credit history.

If you do not have this, it’s time to do some research.  Find banks in your local area that have a history of issuing adjustable-rate or otherwise subprime style mortgages.  Since applying for a loan damages your credit score, it is important that you only apply to banks which you know are actually making the types of loans you are seeking.

If there are no local banks that offer subprime mortgages, then it is better not to apply locally and try national banks.  Note that it can be difficult to receive a bad credit mortgage from a national bank unless the bank is on a campaign to make these sort of loans.

Finally, a word of advice:  Even if you do receive a mortgage while you have bad credit, it is important that you work at improving your credit while you are paying down your mortgage.  It will behoove you to refinance a subprime mortgage as a fixed rate mortgage as soon as possible, and you will be unable to do this unless you improve your credit score.  Additionally, governments will commonly sponsor refinancing programs for specifically this purpose.  You should always be on the lookout for such programs.

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