Mortgage Lending Guide: Bad Credit Loans
Bad Credit Loans
The term "Bad Credit" is very intimidating. If it applies to you, you probably feel pre-judged and apprehensive about even trying to purchase a home.
Take heart! Loan advisors are people, just like you, and they know that sometimes "life happens." You may have made mistakes in the past, or your credit situation may be through no fault of your own. In any case, you're now trying to get a new start by owning your own home, and that is to be commended.
If you've chosen the right lender, he or she will work hard to get you the best rate and terms possible, and will advise you on ways to improve your credit and raise your "FICO score." You can also read our report on Building Your Credit, and begin work this very day to improve your credit rating.
Your loan advisor will help, however he or she can't control the rules that the big banks play by. No matter how sincere you are, or how much your loan advisor wants to help, if you've got poor credit, you will pay a higher interest rate. Until you prove your credit-worthiness, you will be viewed as a high risk borrower.
Don't take this personally. Those folks at the big banks don't know you or the situation that led to your credit difficulties. All they can use is numbers.
You may also pay higher closing costs, and you may be required to take a loan that carries a "pre-payment penalty."Read the terms carefully to see how long that penalty clause is in effect. If it's a short time, it's probably fine. But if it's for the life of the loan - run the other way!
A pre-payment penalty is a fee that is charged if you pay off the loan before a specified period of time. It is often equal to 6 month's interest, or more! Some take effect only if you refinance, and some apply even if you sell the home. Be sure to read the fine print carefully and discuss your future plans with your Mouse House Mortgage Loan Advisor. He'll help you choose the loan program that exactly fits your situation.
Why should you take out a bad credit mortgage?
For starters, home ownership is one of the most important things you can do for your own self-worth. Owning a home and working to care for it and improve it gives you a sense of responsibility, stability, and purpose that you will never gain as a "tenant."
Second, it will help improve your credit. Paying mortgage payments on time is a sure sign of a responsible, credit-worthy person. In fact, some lenders will reward your dependability by reducing your interest rate after a set period of time. Be sure to ask about that feature when choosing a loan.
In most cases, your credit can be repaired within two years, at which time you'll be eligible for a refinance into a lower interest loan. Even a bankruptcy will be forgiven after two years, as long as you have made all payments to all creditors on time.
Lastly, you'll be building equity in an asset that will appreciate over time - as long as you keep up with home maintenance and repairs.
As a bonus, you may find that the payments, even on a high interest loan, are less than you would pay to rent a comparable dwelling.
Mouse House Mortgage is a free service for people who are looking for a
mortgage loan with favorable rates, whether you have excellent credit or bad
credit. A friendly mortgage advisor will help you navigate your options and
access the best mortgage rates for your situation.
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