Bad Credit Home Mortgages
From LoveToKnow Mortgage
If you’ve missed payments on your credit cards or loans but still want the joy that comes with homeownership, bad credit home mortgages may be just the thing for you. In fact, these mortgages may help repair some of the damage already on your credit report.
How Credit Affects Your Mortgage
Mortgage lenders need to consider how much risk is involved when they make a large loan. One of the biggest factors they consider is your credit history. Someone who has a history of missing credit card payments or has a lot of outstanding debt is considered a larger risk than someone who pays their bills in full and on time. As a result, people with a poor credit rating may be required to pay a higher interest rate on bad credit home mortgages.
Lenders look at several things to determine your mortgage interest rate, including:
- Annual salary
- Current assets, such as saving accounts and investments; a recent credit report, noting your history of payments, delinquencies, and total debt
- Credit score
This data is compiled and compared to other applicants before the lender decides whether the risk factor is low enough to justify approving your loan and what your interest rate will be, should you qualify.
Your Credit Report
Before applying for a mortgage, you should get a copy of your credit report. This will give you an idea of where you stand in the eyes of potential lenders. It can also alert you to any inaccuracies that you may be able to fix before your lender sees it.
Checking Your Credit Report
Your credit report is kept on file by three companies: Equifax Credit Information Services, Experian National Consumer Assistance Center, and Trans Union National Disclosure Center. In the past, you had to pay for a copy of a credit report from each of these organizations but recent concerns about identity theft have prompted changes that allow each person to request one free copy from all three companies once a year.
You can apply for a credit report through these companies’ websites, or you can visit AnnualCreditReport.com and use the online form to access your reports from all three companies. Experts recommend checking your report with at least one of the companies every few months to alert you to any incidents of fraud.
Filing a Dispute
If you see an error on your credit report, like an address on the report where you never lived or a credit card you never applied for, file a dispute immediately. It is possible someone is trying to establish credit for themselves in your name, which could ruin your credit score and limit your ability to get a bad credit home mortgage. Each of the credit reporting companies have phone numbers or web forms you can fill out to get the dispute process started.
Fix It Before ‘They’ Find It
If your report has an error, you are better off knowing about it before your lender does. The lender may not give you an opportunity to explain why you have a maxed out credit card for every store at the mall; they may just deny your application. If you see the error first and fix it, you can avoid losing out on a home mortgage later.
Credit Scores
Your credit score is largely responsible for determining your mortgage interest rate. This number, which falls between 300 and 900, is based on your timeliness with past credit card and loan payments, how long you’ve had credit, and how much debt you carry. A higher score is better and means a lower interest rate. The national average is around 670.
Bad Credit Home Mortgages
Many programs cater to people who need bad credit home mortgages. By proving that your credit problems are behind you and that you are serious about your mortgage, lenders will take a chance on you. But, you’ll probably pay a higher home mortgage interest rate. After establishing good credit through your mortgage, you can always apply for refinancing.
Timely Payment Rewards
The Timely Payment Rewards program from Fannie Mae makes it easier for people who need bad credit home mortgages. If you qualify for Timely Payment Rewards, your mortgage interest rate will be lower than what is typically offered to borrowers with credit problems, in some cases as much as two percent lower. Although you’ll still start out with a rate higher than homebuyers with good credit, your interest rate will go down after you make 24 timely payments. This program also allows you to buy a home with no money down.
Over twenty home loan mortgage companies offer Timely Payment Rewards, including Countrywide, Washington Mutual, and Flagstar.
Learn More
This page has been accessed 2,488 times. This page was last modified 15:20, 1 March 2007.
© 2006-2009 LoveToKnow Corp.
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