There are many lenders who provide Bad Credit Mortgages. In case of a Bad Credit Mortgage, a mortgage loan is issued to a person who has a poor credit history or poor credit rating.
Many people are unable to secure a loan from the bank or any financial institution because they had credit problems in the past or they have a poor credit history. When anyone is making an application for the mortgage, the lender will check particular person’s credit history. Usually, banks and traditional lenders do not wish to lend to people who have no credit history or poor or negative credit rating. Some lenders may be ready to lend, but they will do it at a much higher rate than the standard mortgages because they consider the risk much higher than the average market risk. This happens in spite of the delinquencies being short-term. This kind of mortgage is called Bad Credit Mortgage, Credit-Impaired mortgage, or Subprime Mortgage.
The reasons for having a bad credit history include the following:
Defaults in payments or arrears in Mortgages: If there is a default in making mortgage repayments as a result of inability to meet the repayment amounts, this will affect the credit ratings of a person.
Decrees or CCJs (County Court Judgments): If anyone has defaulted on making the repayments of a loan or debt and court orders have been issued against him for repaying the creditor, and even after that the concerned person is unable to repay the loan, it will affect the credit rating of that person.
Bankruptcy: Bankruptcy is the state of a person who is unable to clear his debts. If a person is declared bankrupt, that also affects his credit rating.
Usually, the credit scores range from about 300 to about 900. Most of the customers range in the credit scores between 600 and 700.
Usually the borrowers who have credit ratings below 620 are often stuck with Subprime Mortgages and the high interest rates applicable with this kind of mortgages. This can be a result of late bill payments or declaration of personal bankruptcy and there is no option other than going for a Subprime mortgage. The interest rates are higher but they are not the same for every Subprime lender because the interest rate depends on a number of factors such as credit score, the down payment amount, and the kind of financial problems that the borrower had in the recent past.
The different types of Subprime Mortgages include:
- Interest only Mortgages
- “Pick a payment” loans
- Initial fixed rate mortgages which transform to variable rates
But there are some Subprime mortgage lenders who really try to help people who have credit problems. They provide loans at an affordable rate, but the borrowers really have to make an extensive search for them.
Bad Credit Mortgage customers have to be extremely cautious about Predatory Mortgage Lenders. They often try to earn additional profit by cheating the borrowers in various ways.
Major Subprime Mortgage Lenders include New Century Financial Corporation, Ameriquest, Citigroup, Roadloans etc.
Therefore, Bad Credit Mortgage is a commendable way to solve problems of people who have poor credit history.
