Mortgages for Bad Credit – A Must Read Guide

Bad credit mortgages were created because so many people have fallen onto hard times that have adversely affected their credit rating. This allows banks and mortgage companies to continue financing homes for would-be homeowners who don’t have outstanding credit histories.

The downside to mortgages for bad credit consumers is the mortgage rates you’ll be shown will be higher than for those with great credit scores, often substantially higher. It’s important for you to determine the reason for your bad credit.

Was it a tough period in your life that since then has improved? Is it because you have trouble learning to live within your means? Perhaps you made some major purchases that you really shouldn’t have made. It may be due to an unexpected illness or accident that kept you from being able to work and pay your bills. Whatever the reason, taking on a mortgage payment is a huge responsibility that will only put you in deeper debt.

For this reason, it’s wise to do as much as you can to repair your credit before you even start shopping for mortgages for bad credit. Paying off delinquent accounts or settling accounts that have been turned over to a collection agency not only improve your credit, it may result in being offered lower rates or payments on a mortgage loan.

Understand that you do have options, and the companies offering bad credit mortgages compete with each other for your business, oftentimes very aggressively. Don’t be lured into accepting the first offer you receive out of fear you may not get another one. Some lenders count on you feeling exactly that way and hope your desperation to find financing will lead you to accept their first offer, even when it isn’t the best deal they can make.

Always shop around before deciding on a mortgage lender. Almost all lenders today have programs in place to assist those with bad credit in finding a suitable mortgage. Check with several before you decide on one.

If you already know you’ll be applying for a mortgage, and your credit rating is poor, don’t open any new accounts for at least three to six months before you begin filling out mortgage applications. Every time you open or even try to open a new account, it shows up on your credit report and may give potential lenders the idea that you’re trying to run up a bunch of credit. This almost always makes lenders nervous and hesitant to loan you even more credit.

For that same period of time, don’t close any accounts, even they’re not good and especially if they’re older accounts. Closing those could actually do more harm than good and can damage your credit score even further. When you close an old account, it causes your credit history to look younger than it is.

If you know for a fact your credit is not good, it’s a good idea to submit in writing a letter of explanation when you apply for a mortgage. If there were extenuating circumstances that caused your credit to get derailed, tell them about it.