Are you considering getting a mortgage, but you are worried that past or even current life issues may get in the way? Stop stressing out because there are several home financing options out there for people with poor credit, as well as those with no credit, or those who have filed for bankruptcy before. Learn how you can benefit from traditional and subprime loans, and discover options that you could avail of.
1It's Possible To Get Mortgage Approval
In life, it's but natural to go through stressful times, such as when you lose your job, get divorced, or get sick. When it comes to home loans, all is not lost because you can still purchase your dream house, as long as you apply prudent and smart measures when applying for financing. Many modern lenders can give you a hand, as long as you don't allow yourself to get carried away by all those urban myths surrounding credit.
One huge issue is about bankruptcy. Usually, bankruptcies remain in the credit report for about ten years; and because of this, people who wish to purchase a property, hesitate to apply for house mortgage because they don't think they'll get approval. This is not entirely accurate, as there are exceptions. After a thorough examination of a mortgage application, lenders could grant it, if a bankruptcy happened around two to four years ago, and if the borrower acted properly as regards to that financial issue at that time.
2Past Bankruptcies And Mortgages
The FHA (Federal Housing Administration) typically approves mortgage applications as long as the bankruptcy occurred two years before, and this is one of the reasons why you should approach the FHA for a mortgage if you believe you are eligible. As for veterans, they can get better deals via the VA or Veterans Administration. Thus, if you have experienced bankruptcy, don't be quick to give up on your dream of owning a house for the next few years or so, as there are several options for you.
First, get a copy of your credit report and approach a few reliable lenders, who can carefully examine this and give you suggestions, regarding what financial move you should take next. Perhaps you could avail of mortgages, specifically made for people who have poor credit like those who have late payments, tax liens, bankruptcy, or those who have gotten involved with collection agencies. Every risk is meticulously assessed when it comes to subprime loans, since, these are only offered to people who have poor credit.
3Try Applying For A Usual Mortgage First
Before opting for subprime loans, you can attempt to get mortgage approval from regular lenders first. Check out the plans being offered by Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation). It's best to inform them from the beginning that you are planning to apply for a subprime loan, but you first want to check if you are eligible for a traditional or a government loan.
In case you don't qualify, there are still several options for you especially today, since, a lot of lenders offer subprime loans as well. There are also several mortgage brokers who specialize in providing mortgages to people with bad credit. Just don't expect to get the best deal with regard to a subprime loan compared with other kinds of loans.
4Know The Different Kinds Of Subprime Loans
There are different types of subprime loans. Two examples are low-money-down and zero-money-down subprime loans. You won't require PMI (private mortgage insurance) if you are unable to come up with the 20% down payment.
In general, you also won't need impound accounts or escrow to get approved. The status of your credit will have an impact on which type of subprime loan you will likely get. In case your current financial status means that you won't be able to provide the 20% down payment, don't worry because this also means that you are not responsible for shouldering the PMI cost, which you would if you had a conventional mortgage.
5Understand The Terms And Conditions
Here's an example: you paid a 10% down payment on a new house whose loan amount is $200,000 at 7 percent. The regular payments will include the interest and principal which could sum up to $1330, plus the required PMI which could amount to $80, meaning that your total payment is $1410. If the situation is generally the same, but with 8.50 percent, then your payment sums up to $1537 which means that you'll need to pay $127 more every month.
Be aware that subprime loans often include terms and conditions that put borrowers at a disadvantage, similar to some traditional loans. Thus, before signing any contract, be sure that you fully understand every condition and terms included. And don't forget to apply for a regular loan first before getting a subprime loan.
6Learn How Subprime Loans Are Classified
Subprime loans are typically categorized alphabetically, depending on how creditworthy a particular borrower is. For example, a person with a good credit report may be eligible for an "A" loan and so on. Subprime loans also have a specific qualification system.
The loan rating system is from A to F. A loan offers the best conditions for a consumer, while F loans are the least ideal. When getting a subprime loan, keep in mind that assessors will likely focus more on your past mortgages and rental history.
7Consider No-Money-Down Loans
Your payment habits provide lenders with valuable clues, regarding how you will handle future financial issues. Moreover, it's not true that you need to shell out a big down payment for a subprime loan. Many are no-money-down loans which are somewhat similar to traditional loans; so, don't be quick to assume and believe everything that you hear.
Expect for the interest rate to be higher as compared with a conventional loan, but it will not be so high that it will be financially crippling. There are also two forms of zero-down subprime loans. One example is the "100 percent" financing, wherein the lender holds a single note; the other is the "80/20" loan, wherein the lender finances 80% of the sale price of the first mortgage and holds the remaining amount to a second mortgage.
8Check If You Require A Second Mortgage
Keep in mind that there are some cases, wherein the second mortgage will also be carried by the same lender, but not all the times. In case you are not able to get a second mortgage, the seller could take this for you. Moreover, if your target is to obtain a rated-A loan, you need a good credit report, a score of at least 600, and no late payments.
Your report won't include your payment history as regards to your rent. However, your mortgages will appear on your credit report. This is why, it's recommended for renters to keep documents, including canceled checks, so that they can show evidence that they regularly pay their bills on or before these are due.
9Keep Your Rent Payment Records
As mentioned, your credit record won't show rent history or payments, which is why you should keep an up-to-date record of such. Also, the average amount for a down payment is 5% for most A-loans. It's also still possible to get a B-loan if your credit score is 560, and if you have a few 30-day late payments on your rent.
As for a C-loan, the down is at least 25%, and your credit score should not be below 520. Plus, you should only have a few 30-day late payments, one 60-day late payment, and no 90-day late payments. D, E, and F loans share many similar characteristics and their main differences are regarding the credit score, which could be as low as 480, and you will require a 30% down at least.
Now you know that you can still get a mortgage, even though you may have a bankruptcy on your record, or you have poor credit. What you should do is try, because nothing will happen if you don't try. You won't know if you are eligible or not for a home loan if you don't take action today. So, try and see what home financing options you have. With some luck and diligence, you can buy your dream house!