Overview of Bad Credit Mortgage
It is a common misconception, as well as, an unfortunate
belief, that one must have absolutely perfect credit
to get a mortgage. To be sure, having perfect credit
will get you the best deal. If you have no flaws on
your credit report, you’ll get the best interest
rates, lowest closing costs and “points”,
easy qualification, and mortgage lenders and brokers
sending flowers to try to get your business.
But not everybody falls into that category. People
go through periods of unemployment, divorce, or illness.
The family car may break down at the same time the credit
card payment is due, so it gets sent in a couple weeks
late. No matter how well you plan your finances, almost
everybody faces some sort of unexpected expense, and
many of us have to make hard decisions and let some
things slide. It doesn’t mean you’re a bad
person. You may no longer be the bank’s best friend,
but you don’t have to be left out in the cold.
Lenders who specialize in poor credit mortgages may
have different standards, so if you get turned down
by one, don’t get discouraged, you still have
a good chance at finding a lender who wants your business.
These types of lenders don’t go strictly “by
the book” like a conventional lender, who approves
loans largely based on a formula based on your FICO
score. A subprime lender will certainly look at that
score, but will also consider your overall credit history,
recent trends, and explanations you may have for periods
of tardiness. The lender will also look at your job
history and ability to generate income. Lastly, the
lender will look at the equity situation; that is, if
you want a second mortgage, they will want to see substantial
existing equity in the home, if you are buying a new
home, they will want you to have a substantial down
The subprime lender is more willing to make allowances
for individual situations, and may be more willing to
make a loan even if you are not strong in all three
of those areas. For this reason, if you have a good
down payment and a steady job, but a spotty credit record,
you may still be approved.