Bad credit loan mortgages are intended specifically for individuals with a bad credit history. Bad credit mortgages are also referred to as non-status mortgages. Failure to pay off outstanding debts or credit payments on time is the primary reason for getting a bad credit rating. This can happen due to outstanding rent or mortgage arrears, county court judgments (CCJ) or bankruptcy.
Loan mortgage with bad credit
A recent survey has revealed that one fifth of all adults are not able to qualify for a standard mortgage as a result of a previous or current financial situation. There are many mortgage providers who are ready to provide loans for individuals with bad credit ratings. A bad credit mortgage is especially structured for individuals, who are unable to take out a mortgage from high-end mortgage providers.
A bad credit mortgage always comes at a higher rate. This is on account of the higher risk that the lender faces with such a borrower. Loan requests from people with bad credit do not fit under the standard underwriting guidelines. Sub prime or bad credit loan mortgages are offered at higher rates or lower maximum amounts. Some lenders specialize in loan mortgage to those with bad credit. Such loans allow you to seek relief from high mortgage and interest payments. It is also an opportunity to clean up your credit history. The factors that most lenders of bad credit loan mortgages look into:
- Employment history and income stability
- Current monthly debt
- Value of the property
- Down payment
A consumer credit report is a document that contains a factual record of an individual's credit payment history. Mortgage lenders are permitted by law to review a mortgagee's credit report to determine whether to grant him a mortgage approval. A credit bureau or credit reporting agency carries out the business of gathering, maintaining and selling information about a consumers' credit history. It collects information about consumers' payment habits from credit providers like banks, savings and loans, credit unions, finance companies, mortgage companies and retailers.
The credit bureau stores this information in a computer database and sells it to loan lenders in the form of credit reports. When a person applies for a mortgage home loan, the mortgage company orders credit reports from at least one credit bureau. This information is analyzed to make a decision about granting of credit. Mortgage lenders pay the credit bureaus for the credit reports that they provide. The top three credit bureaus in United States of America are:
- Equifax Information Services
- Trans Union Corporation
Credit history is based on the following sources of information:
- Public records - Information contained here includes electoral roll information, court judgments and bankruptcies.
- Information provided by financial institutions and other lenders such as banks offering credit accounts and lending facilities.
Most lenders use an independent credit reference agency to collate this information, which will then be used to calculate the potential risk in providing loans to the person. Bad credit can occur due to many reasons:
- Late payments
- Many credit cards
- Heavy medical bills
- IRS debt
- Settlements arising due to Judgments /divorce
Second Mortgage Home Loan
The globalized economies are experiencing low interest rates since a few years. Second mortgage home loan involves a second lien on the house property. Many homeowners are opting for second mortgages and consequently the number of second mortgage applications has risen considerably. Second mortgage home loans are typically at a higher interest rate than the first or primary mortgage. Prevailing low interest rates have encouraged mortgage lenders to offer second mortgage interest rates as low as 5%. If the homeowner cannot keep up with the mortgage payments and the house gets sold, the first mortgage has priority over any money received for the home and the second mortgage can only be paid after the first mortgage is paid. Hence a second mortgage is usually at a higher interest rate than the first because it carries more risk to the mortgage lender.
Mortgage Loan Rate
Mortgage loan rates are a factor of many conditions. Some of them are:
- General economic outlook
- Government policies
- Geographical situation
- Seasonal Indices
Freddie Mac's Primary Mortgage Market Survey reveals that mortgage rates are still quite low and this is the ideal time to either refinance your home with a second home mortgage loan or home equity loan. Average home mortgage loan rates in the U. S. in the beginning of 2005 hover around 5.77%.