In an online or back-office business, a good credit standing is essential for positive results. If you are looking to apply for a home loan then you know that your credit rating will determine how lenders view your application, your interest rate, and fees. Even mortgage lenders have begun to focus on determining credit ratings. How do you obtain a very low credit rating and still be able to obtain a home loan? Read on and we’ll discuss your options.
Your credit report contains information about every aspect of your personal and financial life. There are two credit reporting agencies that you can use; Experian and Equifax. Both agencies keep a log of your credit activity and provide a fairly representative overview of your credit situation with third parties. In general, credit scores are usually calculated in the following way:
Pick a few credit companies: Both agencies will pull your credit report. Before you apply, you should obtain a few free credit reports from the government agencies (eg: Department of Justice) and companies that are typically available to businesses like yours. Review each and consider any discrepancies or mistakes. You can obtain the disputes and errors database for free by visiting annualcreditreport.com
Mortgage Loan: Next the mortgage company researches all of the information on your credit report. The higher the amount of bad Credit Mortgage Lending you have the higher your rate. For example, if your credit score is as low as 620, you will be offered a higher rate than someone with a credit score of one.
How to Get Approved: At this point, your lender will study your credit information and find out how much it would cost you to take on certain forms of credit. They will compare your report from Bad Credit Mortgage Lending to your current as well as past credit history. Once they place your loan in their pipeline, they will enter up other offers to acquire your business, leading you to a lower monthly payment.
Unfortunately, if you are unable to pay excess monthly payments or default on the mortgage then your credit rating has decreased. Thus, obtaining a mortgage many years ago was not entirely the wisest thing to do. Your progress will most likely be sealed with foreclosure on your credit report if you move forward with the purchase of your home.
exponentially low credit score: At some point problems on credit copies of the credit report show up. These credit reports include all credit transactions that we have been engaged in that don’t show as a normal credit transaction, such as temporary and installment credit, store cards, personal and investment accounts, etc. If all of these transactions are listed on your credit report you will become a higher credit risk requiring a higher interest rate and more stringent financial requirements.
Consequently, if you are seeking a mortgage or home loan you will need a higher credit rating. This means that you must document your current employment and income and establish your income, liabilities, assets, and expenses. You may also be required to pay a higher rate of interest because lenders view you as more of a financial risk, and security is more important to them.
Lower credit score: You can have a low credit rating, but short and little time to repair it. If that’s the case, the best deal for you might be an FHA mortgage, as you will be more likely to be approved because the interest rates are lower and you have time to fix these blemishes.
Potential for a lower rating: If you are close to the cut-off point for either an FHA or conventional mortgage, you may be able to have a lower loan rate using a Private FHA Mortgage. This is an FHA (Federal Housing Administration) loan and is often the first place you can look for these types of loans if you have had credit problems in the past.
Down payment lower than a conventional loan (usually 5-10% down payment): Beware that with less than a 5% down payment you may become indebted to the private investor or the hard-money lender. By this time you should have established good cash flow so that you aren’t taking on debt.
Higher interest rate: If you fall below a 620 or regarding the lower range of conventional loan limits, you may not be able to receive a loan with a conventional loan rate as high as the one from the Hard Money or Private Money source.
Longer-term: If you have a less than desirable credit report due to past bankruptcies or late payments this may be thought of as a negative since it will reduce your overall credit score. However, when you have stayed current or at least as current on your bills as other borrowers this is probably a good sign that you are taking responsibility for your bills and still have reserves for future payments on any accounts that are due.
There are free credit report agencies that request a simple credit report from you once every 12 months.