Obtaining a mortgage is never impossible even for those individuals with bad credit. This is because every situation is different and the term bad credit can cover a broad spectrum of many different types of credit issues. Corrective steps can be taken such as fixing errors on credit reports, paying down existing debt and shopping around for mortgages from different lenders.
As with all aspects of life there are many gray areas and the term bad credit can cover a wide variety of different circumstances. Truly bad credit may include a recent bankruptcy or foreclosure which will significantly limit any possible mortgage opportunities. However, someone may have less than perfect credit which may include late payments or high debt load which may require additional work before obtaining a mortgage.
Also, all credit issues can be addressed in a proactive manner. By taking steps to cancel credit cards or start making payments on time, any person can fix their credit. Patience and planning is the key to repairing bad or less than perfect credit.
Every individual is provided one free credit report annually from each of the three credit reporting agencies. If you're looking to obtain a mortgage the first step should be to order a free annual credit report and review all of the included information for any factual errors which could negatively impact your ability to qualify for a loan.
It may also be worthwhile at the same time to order your FICO score because most mortgage lenders have a minimum score requirement and anything below 600 raises red flags for lenders. You have a legal right to correct any factually incorrect information on your credit report. Be sure to do fix errors in writing and follow-up with the credit reporting agency to verify errors have been corrected.
Once you have obtained your free annual credit report step should be taken to implement credit repair strategies to boost your FICO score. Paying down debt is the easiest type of credit repair that can be done to help you qualify for a mortgage. It is also be possible to put notes in the credit report explaining a particular situation that can affect you qualifying for a mortgage.
Seeing what outstanding loans are currently reported and making a concerted effort to make timely payments consistently for an extended period of time will also help. It shows perspective lenders that you've turned a corner and have become a more responsible borrower who takes their obligations seriously.
Years ago credit issues such as bad credit or less than perfect credit may have outright prevented an individual from obtaining a mortgage. Now however, what usually happens is the borrower will be paying more in interest due to the risky nature of the loan. There are two additional loan types for riskier borrowers which are A Minus loans and Sub-Prime loans.
Individuals with bad credit will be unlikely to qualify for any kind of standard or conventional mortgage. These other types of loans however provide an opportunity for those repairing their credit and getting their financial life in order to still move into their dream home. The difference is that normally a conventional loan may have a 4% or 5% annual interest rate where as sub-prime loans often have interest rates from 10% upwards to 14%.
A Minus loans have become more widely adopted by national lenders to fill that middle area between Conventional mortgages and Sub-Prime mortgages. Interest rates on A Minus loans typically fall in the 7% to 8% range. While individuals with bad credit may not qualify for this type of loan those with less than perfect credit still have an opportunity to purchase a home without paying exorbitantly high interest rates or failing to qualify for a mortgage altogether.
Mortgage instruments have become much more sophisticated and there are a greater variety of mortgages available to all types of individuals. Having perfect credit should be the goal of every adult due to the benefits of access to more credit at lower interest rates but if something has happened in your past and you're on track to clean up your finances lenders will often see that reflected in a credit report and work with you to get you into your dream home.
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