Getting a Poor Credit Mortgage

December 28, 2011 by  Filed under: Credit 

When a person has bad credit, it might seem near impossible to ever dream of being able to obtain a home. But while people with bad credit scores might find it more challenging to be approved for a mortgage, there are many lenders that specialize in helping customers find a bad credit, or poor credit mortgage. These companies are often called subprime lenders. They can be a great alternative, but homebuyer’s first need to know what comes with these types of loans.

A poor credit mortgage will always have a higher interest rate than conventional mortgages because they are a much higher risk for the lender. Because the borrower has not provided a good track record of paying off their debts and making payments on time through their credit score, lenders have no reassurance that the customer will pay their mortgage, either. Although the loan will be secured by the home and the lender will be able to foreclose should the borrower default on the mortgage, lenders know this takes time and money, and would rather loan to someone that will simply continue to pay the mortgage. The high interest rate compensates for this higher risk the lender is taking.

Another requirement some lenders have for borrowers to be eligible for a bad credit mortgage is a sizeable down payment. While in a conventional mortgage only 20% of a down payment is required, a poor credit mortgage might come with a requirement of 30% or 35%. If a co-signer appears on the mortgage paperwork along with the original applicant, the large down payment requirement can often be waived because the lender then has reassurance that the loan will be paid, even if the original applicant defaults on the loan. However, having a co-signer generally doesn’t lower the interest payments on bad credit mortgages.

Subprime lenders are one of the most popular ways to find a poor credit mortgage, but there are other lenders, such as private lenders, that can be of help as well. These lenders are not part of any financial institution or company but are private individuals or organizations that have money to loan and think providing mortgages is a good investment.

One of the most challenging things about working with a private lender to obtain a bad credit mortgage is actually finding one. Because private lenders aren’t a business looking to profit from loans, they don’t generally advertise their services and so can be difficult to find. Homes that are advertised as having “Owner Financing” attached to them are a type of private mortgage because the private homeowner is willing to make a private arrangement between them and the buyer. Often, owners will finance a home they are selling when they want to sell to certain buyers but know those buyers are having problems obtaining financing, or when they are having trouble selling their home.

Mortgage brokers are also a great resource for finding either subprime lenders or private lenders that specialize in poor credit mortgages, and they can also help advice you on which one will be best for you to work with.

Bryan J is the author of this article. For more information about Bad credit mortgage or no credit mortgage please visit canadianmortgagesinc.ca

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http://EzineArticles.com/?expert=Bryan_Jhon

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