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Friday, March 29, 2013

Getting a Mortgage with Bad Credit

by Miranda

Getting a mortgage with bad credit isn’t as impossible as it seems. This is true if you are considering refinancing your mortgage or buying a home outright.

The biggest reality you have to face when you get a mortgage with poor credit is that you will have to pay more money for your loan, but you don’t have to accept any rate the lenders try to force down your throat. The lower your credit score is, the higher your interest rate will be. This means that over the life of your loan, you could pay a lot more. Here is an illustration that compares the number if you borrow $180,000 for 30 years, figuring 1.25% for property tax and 0.5% for PMI:

· Excellent credit and a 4.6% interest rate: $1,110.26 monthly payment, $143,118.55 paid in interest over the life of the loan.

· Good credit and a 5% interest rate: $1,153.78 monthly payment, $158,410.47 paid in interest over the life of the loan.

· Fair credit and a 6.3% interest rate: $1,301.65 monthly payment, $210,369.37 paid in interest over the life of the loan.

· Poor credit and a 8% interest rate: $1,508.28 monthly payment, $283,179.44 paid in interest over the life of the loan.

You can see the big difference that your credit score makes. This applies whether you are buying new or refinancing. The lower your credit score, the more you will pay in interest. If you want to get a bad credit mortgage, you have to be prepared to pay more in interest. (Of course you can get a lower rate with 15-year mortgages, but you’ll still have to pay more than someone with decent to good credit.)

Proving Yourself

On top of being willing to pay more in interest charges over the life of your mortgage loan, you will also need to prove yourself an acceptable risk in order to be approved. You might have to show income documentation, indicating that you will be able to afford the loan. You will also have to show that you have stable job, and that your income is unlikely to change anytime soon. Your other debts will be taken into consideration as well. If you have a high debt to income ratio, you might not be approved for a mortgage with bad credit.

In some cases, you might be able to prepare a letter or statement explaining your circumstances, and what you are doing to get your credit back on the right track. For those who have a foreclosure in the past, or for those who have declared bankruptcy, some sort of assurance that it isn’t likely to happen again soon is often sought. Your statement may need to provide information about what led to your poor credit situation and the steps you are taking to improve your credit now and stay out of trouble in the future.

Watch Out for Scams

Before you apply for a mortgage, get your free credit score right now with Credit Sesame. You don’t even have to sign up for a trial.

Everyone should be vigilant about real estate scams, but when you have poor credit you have to look extra hard about the deals that come your way. There are those who promise that you can get a loan — if you are willing to pay upfront. It is important to note that no one can “guarantee” you a loan just because you pay them money; it’s illegal to do that. Many scammers offer the assurance that, with the right upfront payment, you can be approved for a mortgage. They take your money and disappear, and you are in an even worse position.

Carefully evaluate your options. In some cases, it just may not be time for a bad credit mortgage. It might be wiser to clean up your credit before applying for a home loan.

My name is Scott Grebner and I have been helping my clients realize their own personal real estate dreams. Real estate is a relationship-based business that works best when client relationships are built on trust and confidence. My goal is having clients be completely satisfied with the professional and caring service they have received.

The role of technology is rapidly changing how the real-estate market functions in this country today. Gerharter Realtors is embracing these new mediums of communication to better serve our customers. We have created our e-family to better place important information in your hands to help you with your housing needs. As a part of Gerharter Enterprises we have access to a broader range of additional services and resources to better assist you. Visit me at my Web Site, Blog, Facebook, Twitter, You Tube or Pinterest. Please check out our helpful resources on Sellers Tips, Buyers Tips, Foreclosure Tips, and Mortgage Tips. For a personal consultation please visit our Office.

It seems that the dream of past generations was to pay off a mortgage. The dream of today’s young families is to get one. I would love to hear from you, about your Real Estate Dreams and questions.

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