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Less than perfect credit/ damaged credit/ bad credit
There are ways for consumers with poor credit to secure a mortgage for the purchase of a home.
If your credit score falls below 630, you have relatively poor credit. Your credit score is a number between 300 and 580 that ranks the risk you pose of defaulting on a loan. The higher your score, the less likely you will default. The lower your score, the more risk you are as a borrower.
When you have excellent credit, you are able to receive advertised interest rates, great repayment terms and have little trouble applying for credit. The lower your score, the higher your interest rate and the more questions you wil have to answer.
Consider Debt Relief option before you apply for a loan. With debt relief you will be able to get back on track to a better credit score.
You may also try to apply for a mortgage, however, Debt Relief is highly recommended.
If you are looking for good rates, you have to have a credit score above 680. The average consumer can find fairly decent rates all the way down to 630. Beyond that, you may have to look a little harder for financing.
According to Fair, Isaac & Co., the company that created credit scores, 13% of consumers have a FICO score under 599. These consumers become sub-prime borrowers, which means that basically they will receive rates below the prime.
What do you do if you find that you
are in this bottom 13%?
First, you will simply have to accept that you will pay more or go without. In order to obtain a mortgage or other loan, you will have to pay more than other borrowers do. This is because the lender sees you as a risk. They don't want to lend money that won't be repaid.
Sub-prime lenders will consider more than just your credit score. If you can show that you have turned your credit usage around, you may be able to have your application approved. For example, a lender may accept an applicant with a credit score of 580, if their credit report shows that they have paid all of their bills on time for the last 18 months.
Make sure that you will be able to pay back the money you want to borrow for a home. Most sub-prime lenders offer only adjustable-rate mortgages. These mortgages feature lower interest rates at first than do fixed-mortgages. But the rates can go up over time. Make sure that you can pay the mortgage if it was to hit a peak level. You don't want to pay for years and years only to lose the home because interest rates increase.
You can find sub-prime mortgages with little down. However, you can often receive a lower interest rate for more of a down payment. You might even consider paying points to lower your interest rate.
You can expect to pay an interest rate well above the advertised rate for a 30-year fixed-rate mortgage. Talk with several lenders to compare their rates and terms. If one offers you a much lower interest rate, be cautious. Read the fine print carefully on each document you are given.
While you may pay higher interest rates now, that doesn't mean you will always have to. There is nothing that says you can't refinance in five years once your credit score improves.
There are mortgage options out there for borrowers with less-than-perfect credit. You just have to look for them.
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