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Worried about your Credit Report?
There are a lot of homeowners that are very worried about their credit reports and their ability to qualify to purchase a home. When you have credit problems, they don't have to go on forever. Unfortunately, many borrowers who get into credit trouble just seem to be on a never ending cycle that keeps them in a bad credit mortgage for life.
Statistics say that very few people who get into credit trouble ever straighten it out. Some theories say that these people just will never pay their bills on time and there have even been theories that this is some type of problem the people have, like a disease. As if they are a victim of something. More likely, they just have not been taught about credit and how to have a proper plan and only need someone to give them some help.
I believe this is because borrowers with less than perfect credit tend to fix the problem that is bothering them now instead of trying to come up with a solution to have a plan for getting back on track and qualifying for a mortgage that carries better interest rates in the future. I also believe that this is the fault of most of the mortgage people out there for not helping people and putting them into a mortgage that they can really afford.
Don't just take a mortgage to put a band aid on the problem only to have the problem come back because you did not do enough the first time to let you get back on track. I specialize in assisting borrowers with less than perfect credit not only obtain a mortgage but will work with you on ways to improve your credit and put you in a position to be able to qualify for the best rates in the future.
- Work out a plan that you can stick to with your mortgage professional
- Have a goal for improving your credit and when it will be good again
- Be ready to explain the late payments that caused you bad credit rating
- Expect to refinance again when your improved credit will get you a better rate
- Expect a prepayment penalty, but have that prepayment penalty match the length of your plan
- Don't pay huge fees for a mortgage, we do not all overcharge because you have had troubles
- Don't be afraid to ask questions
"But I will never be approved!"
Let's tackle this first. Stories and myths abound about how borrowers were denied a mortgage. Mortgages do get denied, but today, there are enough banks to choose from that almost anyone can get a mortgage.
Just because you have late payments does not mean that you will not qualify for a mortgage. Bad Credit Mortgages are approved for borrowers with late payments on their credit cards, their cars and even their mortgages.
Banks that Specialize in Less than Perfect Credit
There are quite a few banks that specialize in less than perfect credit and bad credit mortgages today. A main advantage of dealing with a mortgage broker, like our company at Prime Financial, is that we deal with many different lenders that provide sub-prime mortgages that specialize in different programs to help people with credit problems. Rather than having to go to a number of places to find out which lender or bank will approve you, we can do that for you in one place.
While these banks do charge a higher interest rate due to the risk of giving a mortgage to those who have a history of paying their bills late, they are also used to seeing late payments and have a system in place for you to explain the problems.
In the mortgage world, this is called sub-prime credit and sub-prime lenders have many programs that will assist borrowers to rebuild their credit history.
30 year mortgage rates for sub-prime lenders can be very high, but a sub-prime borrower can get into a 2 or 3 year ARM program that gives a rate that is fixed for the 2 or 3 years necessary to make your payments on time and build a better credit history.
The rates for the 2 or 3 year ARM programs are still higher than the best rates, they are not nearly as high as a 30 year fixed rate for a sub-prime borrower and often can be bought down to the better rates by paying points. When you use my services I will explain your choices and why one is better than another.
Higher Fees come with Sub-Prime Mortgages
Expect to pay higher fees in the form of points or origination fees with a bad credit mortgage. There is more work involved in getting these loans approved and the lender is taking a risk in providing a mortgage to borrowers with less than perfect credit.
These fees should be about 3% of your loan in total, although that percentage may be higher for small mortgages under $100,000.
Be very careful of anyone who wants to charge you larger fees with the explanation that you have to pay more. There are those who prey on such borrowers making them feel unworthy of getting a mortgage and pretending they are doing them a great favor!
I believe that if I can help you improve your credit scores, I can get paid again when I get you a better mortgage rather than trying to make twice as much on one loan and then hanging you out to dry! I consider it my job to help you improve your credit, give you a plan to work with and help you stay on track to follow through to a better mortgage down the road.
Creating a Plan to Fix those Credit Worries
Getting a sub-prime mortgage when you have less than perfect credit or bad credit or even a bankruptcy can help get you out of a tight spot, but having a plan to work with to put you back on track is even more important.
A good plan is the two step mortgage, where you take a sub-prime mortgage for 2 to 3 years, or even just one year, to give you time to get your finances straightened out. This may involve consolidating debt, taking out cash to be financially secure or simply getting a new mortgage that you can pay on time.
Once you pay off those credit cards, don't go back out an fill them up again. There are too many borrowers that do just that. Often, this happens because they really couldn't afford the mortgage that the mortgage professional got them into.
The key to making it work is not just taking the money out, but in having a plan to make it all work that you can follow. Be honest with your mortgage professional and share with them what your bills are and get a mortgage that you can really afford.
The bank guidelines use the bills that are on paper to decide what it is that you can "afford" and you need to put down all the expenses on paper, not just the ones that show up on a credit report in order to plan out what payments you can make and how to make sure that you will stay on track.
Everyone runs into special expenses such as having to fix a car, yet so few of these mortgages are approved taking this into account. A little extra time before signing the papers in figuring out your true expenses can save you years of heartache. You may have to pay a higher interest rate on the mortgage you get now because of late payments, but there is no reason that you should have to pay those high rates forever.
Planning on Lowering the Payments and Your Debt
A good plan also involves leaving enough money to be able to pay down the remaining debts after getting a sub-prime mortgage, not just making payments on time.
Have a Goal for How Long It will take to get a Better Rate on a Mortgage
It will take a full 24 months of ontime payments to get you back into the better rates though, so know this going in and plan accordingly.
Credit scores improve very quickly once you are back on track and making your payments on time. It surprises some people just how fast this can happen. Understand though, that even when scores are higher the best banks often will not give you the very best rates when there have been late payments made in the last 24 months.
As long as your payments have been on time for a year or more, your credit may very well be satisfactory, in fact Sub-Prime banks often look at only the last 12 months of payments. But it really does not do a whole lot to just get another sub-prime mortgage other than padding the pockets of a mortgage professional.
Working with a good mortgage professional like myself will let you know what is coming down the road and just how long you will have to wait and put you into a mortgage that makes sense
A Letter of Explanation
If you have had credit problems in the past, discuss them honestly with your mortgage banker and come to the meeting with a written explanation or have that explanation ready and your mortgage professional will help you write the explanation. Handing in this letter of explanation along with the application will speed up a less than perfect mortgage considerably.
The banks and the underwriters know there can be legitimate reasons for credit problems. Unemployment, illness or other financial difficulties can be explained to the underwriter.
Without a letter to explain, the bank and the underwriter have to look at only the history of payments and when there are a number of late payments and no explanation, they always assume the worst.
Prepayment Penalty
Be aware that many sub-prime mortgage loans come with a prepayment penalty that is the length of the ARM product. This is because the bank is taking a risk in giving a loan to someone with less than perfect credit and they give that loan under the assumption that they will make a certain amount of money off of it.
Should you fix your credit and refinance again, the bank will get the money that they would have made on the rest of the payments through a prepayment penalty.
There are 2 types of prepayment penalties. Either a percentage of the loan or an interest penalty. A six month's of interest prepayment penalty can be very, very expensive should you sell the home or refinance again, watch out for these!
Some states now allow only the percentage penalty.
A prepayment penalty can cause you to wait longer than necessary in order to refinance that bad credit mortgage into a good credit mortgage. This is why having a plan in place will help you and your mortgage professional plan for what is coming.
Getting Back on Track
Don't let those questions linger. Give me a call and we can discuss the solutions. Many issues can be explained and for those that can't, we will put you on a game plan to get you qualified for the home you want.
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Harry
Smith
email Harry@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-514-9000 |
Drew
Smith
email drew@dailyinterest.com or reach me by phone Office 1-248-548-7655 Cell 1-248-703-7770 |
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