In this day and age, people get bad credit histories for all sorts of unforeseen reasons, apart from the old standard of living above one’s means. I know several people who have got into difficulties through either redundancy, prolonged illness or a car accident, divorce, or in fact one luckless fellow had all three situations arise.
Is it possible to get a loan even with a bad credit mortgage? In today’s mortgage and loan trends, a bad credit mortgage is absolutely possible.
In the past, applying for a loan involves a thorough check up on your credit history and income background. With the world wide web, it is virtually impossible to hide any defaults. If your history is less than perfect or if your income is not that high or both, then your application for a loan is instantly rejected. This practice limits the number of people who can apply for a loan.
Today’s market has adopted more flexible methods. Bad credit finance makes it possible for people with low credit scores to still apply for a loan and get approved.
It must be remembered, that all lenders will look at the risk, price the risk, probably insure the risk, and then do whatever thy can to lend the money. After all, that’s where they make their money.
When applying for a high risk mortgage loan, no pre-qualification process is involved. Lenders who offer these kind of mortgages among their list of loan programs give their customers a chance to redeem themselves. With a bad credit mortgage, your credit history is nothing more than history and you still get your money’s worth.
There are several lenders who offer this type of facility. When you choose one, make sure that you’ve learned everything that you need to know about the type of mortgage you are after. More often than not, the solution sounds too good to be true. With bad credit mortgages, it’s best if you keep an eye on the ’sting in the tail’ of any offer.
Bad oe Special Credit Mortgages for Higher Interest Rates
This is the most common catch. They are usually characterized by high interest rates. Lenders charge borrowers higher interest rates for their bad credit mortgages as compensation for the risk they take. Like it or not, borrowers who have bad credit records are loan risks and are viewed as such by lending companies.
In exchange for letting these types of customers get a mortgage of any sort, higher interest rates are charged. This helps protect the lender should something happen and he had to foreclose on bad credit mortgaged property. But anyway, in this day and age, property prices inevitable move upwards ion time.
Discount Points in Bad Credit Mortgages
Discount points in these style of mortgages are common. A discount point is comprised of a percentage of the total purchase price. Borrowers are charged higher discount points, usually four to five points. Borrowers with credit may not pay for these points, or they do but only for a very low percentage.
With bad credit mortgages however, points may go as high as ten, although going this high is not a common practice and against federal law. It all boils down to insurance for the lending company. Lending companies want to make sure that they’re getting their money back from their customers bad credit mortgages.
Larger Down Payments for Bad Credit Mortgages
you wont get away with a virtually no-deposit deal here. Forget the 95% loan. The amount of down payment required for borrowers on bad credit mortgages is larger compared to other loan types. In exchange for ignoring the customers credit history, lenders charge larger down payments from the total purchase price. Typically you will be looking at 70 – 75% loan to value. The lenders know they are protected, due to the equity in your property.
Borrowers may not be able to afford the upfront price of these mortgages. If in any case, if you can afford the down payment required, a bad credit mortgage might even prove a good thing for you. Since the down payment you made takes a considerable portion of your purchase price, this means that you pay lower monthly rates on your bad credit mortgage. This in turn means that as an investment property, you would need less rental income for the property to ‘wash its face’ for you.
Even if you want to move your home, or to go for another bargain investment property, all is not lost. Contact a specialist and declare your situation to them, and see what deals they can offer you.
By: Geoff Morris
In the UK bad credit is a rampant problem, with researchers estimating that one fourth of the folks who apply for refinancing on first time mortgages are turned down or pay higher interest rates because of bad credit.
Nowadays, however, there are more bad credit financing options in the UK than ever before. Various sub prime lending institutions offer plans and mortgage products that help people with bed credit buy or refinance their own property.
UK bad credit mortgages can often provide financing when the more traditional lenders, what is referred to as high street lenders, refused to loan the money. There are UK bad credit loans for first time buyers as well as those who would like to refinance their home to improve their credit and financial standing.
Bad credit is established in the UK as a debtor’s having been involved in one or more of four situations. These are having had a county court judgment (CCJ) , a default on a loan or loans, a history of payments being in arrears, a current or former bankruptcy (fewer than 10 years ago) and an individual voluntary arrangement (IVA).
In the UK what is amazing is that the Debtors Act of 1869 is still in effect, and this pertains to CCJs that have not been paid according to their agreement. This law states that the county court can actually imprison someone who defaults on their payment – just one payment – ordered by the court system.
If a debtor cannot pay money that he or she rightly owes after a court judgment against him or he, and he alleges that his entire debts amount to under approximately £2000 the county court can pass legislation that assigns and administrator for the person’s financial affairs. This is a CCJ.
Before the CCJ decision is rendered, however, the court has to send every creditor a notice of the attempt to resolve the debt. While the CCJ remains in force no creditor can participate in any bankruptcy petition against that debtor unless the debt is more than £700 and the creditor received the CCJ notice 28 or fewer days prior to the petition.
Under the CCJ order to resolve the UK bad credit issue the debtor is ordered to make installment payments on her or his debt. The order could be payment in full or to the percent of the balance that the court determines can reasonably be expected of the debtor. The judgment will be determined with consideration of future earnings.
Just as with a bankruptcy, a CCJ protects the debtor from any creditor’s harassment or collection attempts about the debts included in the CCJ. A warrant of repossession of a debtor’s goods can become part of a CCJ as well, although the UK bad credit resolution doesn’t usually include this.
The money that the debtor pays under the CCJ must, however, first pay court costs for the administration of the judgment. Then the debts are paid. If the money is enough, each creditor is paid. Once all debts are paid as agreed by the CCJ, the debtor is discharged from any further outstanding debts to the same creditors for the same debts.
By: James Copper
At the end of 2006 and the start of 2007 the mortgage and real estate industry as a whole experienced the biggest downward spiral in decades. The real estate market finally peaked after several years of record breaking rising values. As always happens in the real estate market, the values rose to a point beyond that which the average home buyer could tolerate. Investors were not able to sell at the same profits, and buyers felt costs reached a limit that was unattainable and new home buying began to cool.
In the financial arena we had several years of record mortgage origination volumes of which sub-prime mortgages, also known as bad credit mortgages, made a huge percentage of. Lenders were loosening guidelines and creating ever more aggressive programs to try to take advantage of the booming market. This led to many bad credit consumers accepting a loan program that was not in their best interest. The most popular and notorious loan was the 2 year ARM. With a teaser rate that allowed affordable monthly payments.. when these loans adjusted in 2007 we saw many people in loans that they could no longer afford. This cause a massive amount of foreclosure and loan defaults to take place. Lenders were taking bottom line hits in the millions that forced them to declare bankruptcy and shut their doors. This combined with the scrutiny lenders received from Government agency caused some of the biggest players in the industry to leave the loan origination arena. This had a severely negative trickling affect as the remaining lenders faced some very tough decisions. They saw that they could no longer originate loans as they had In the past.
The number of sub-prime lenders that closed doors was astounding. For the remaining lenders in the industry and few the new ones that would pop up in 2007, tighter underwriting standards prevailed. No more could the crazy loose guidelines from years past be allowed. Lenders had to really take a hard look at if a buyer was going to be able to repay their loan, even after an adjustment on an ARM loan took place. They needed to verify more information about the borrower’s history and had look deeper into their spending habits to qualify them for a loan. This led to far fewer loans being originated and fewer sub-prime buyers being able to purchase their first home. Also due to the stricter guidelines those borrowers that had originally been qualified for a loan and placed into a short term (band-aid) ARM loan were not able to qualify for a refinance when the adjustments came due. This forced many people into foreclosure situations.
What we had by the end of the first quarter of 2007 was a perfect storm in the sub-prime lending business and real estate markets. With an oversupply of inventory in real estate coupled with the fact that lenders were not willing to originate loans to the bulk of the buyers.. situations became bleak quickly. Thousands upon thousands of jobs were lost. Realtors, Real estate brokers, Account Executives, Processors, Underwriters, Mortgage Brokers, and loan officers all lost jobs. With fewer lenders and Broker business left operating many of these people had to leave the industry for a new career.
The few that remained were left to pick up the pieces and forge a responsible path for the future. With Mortgage Brokers taking a media beating the life of the mortgage broker and loan originator in 2007 continues to be a difficult one.
In part two of this article we will examine living with the new aftermath in bad credit mortgages and some things all potential buyers need to know in order to buy their first home or refinance into a better loan.
By: Christopher G Burns