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Applying For A Mortgage For Bad Credit

Author : Ask Bill

Being in bad credit may not be all that bad. It may not be the end of your financial road if you find yourself with a poor credit rating. Granted it might make it more difficult for you to make big purchases like buying a home or a car but there may be ways around your bad credit rating to enable you to purchase a home just like everybody else. Nowadays there are mortgage for bad credit programs that are designed to assist people with bad credit to apply for a home mortgage.
The process of applying for mortgage for bad credit is almost identical to any other mortgage application. Your lender may look into your credit report, your employment and income records as well as the amount of debt you are currently carrying. The one thing that lenders may also look into is your available cash. Because of your bad credit, you might be required to have more available cash to compensate. With adequate cash reserves you may be able to put down a higher down payment as high as 20% to 25%. Lenders may be more likely to approve your loan with a reasonably lower interest rate if you were to invest more cash in the property. Your mortgage providers or lenders might also view you as a low-risk applicant because you have already put in so much money into buying the property that you probably will be less likely to default on the loan.
Your lenders may also look into your payment history as well. A huge cash reserve might not necessarily mean that you may be a good paymaster. Sometimes your lender might simply look at your credit score to see if you belong to the high-risk category or otherwise. Basically you may need to have good background information on paper to back up your regular bill payments. So it might be a good idea for you to try to improve your credit score prior to applying for bad credit mortgage. Although the mortgage might be designed for people with poor credit rating, it may not hurt you to raise your credit score a little bit if not for any other reason but to be able to enjoy relatively lower interest rate.
If your situation is more severe than normal or if you previously were able to maintain excellent credit score but unforeseen circumstances beyond your control have caused you to miss out on due payments repeatedly, you may be required to provide your lender with letters of explanation about specific weaknesses in your application. For example, perhaps you may have had a temporary medical problem or previous unemployment that has caused you to be unable to be current on your payments and credits. Let your lenders understand your financial situation better so they may assess your situation according to your specific circumstances instead of generalizing you with other applicants with bad credits.
It may also do you good to be extra careful about the type of mortgage you get. It may not do you any harm to take the time to learn about the different mortgage types and know the terms of each type in detail. This is especially important if you have bad credit because there are many lenders out there who are looking to take advantage of people with bad credit who might be a little more desperate to get a mortgage and might rush into signing the agreements without reading the fine print or understanding every single clause. You might want to do the same thing if you are thinking of refinancing mortgages when you have bad credit. Predatory lenders might corner you into signing an agreement without your reading the agreement down to the last page.
Generally you may still be able to purchase a home even if you have poor credit ratings. The process might be a little bit more tedious as lenders tend to vet applicants with bad credit with a fine-tooth comb due to the risks they carry. However, it may not necessarily mean that you do not have any rights as an applicant. You still have the rights to get your lenders to disclose every bit of information regarding your applications. You also may not have to feel rushed into signing anything. It might always be advisable that you really understand every single word in your agreement prior to signing up for anything.

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Tags:   mortgage for bad credit, bad credit mortgage, refinancing mortgages

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Submitted : 2010-10-13    Word Count : 742    Times Viewed: 315