As a rule, to buy a home you must have 20% down and a good credit history. But there is still good news for the bad credit “owners”: in fact, there is no need to have large down payment or perfect credit order to purchase a home. This article aims to explain the characteristics which mortgage lenders regard as a bad credit mortgage. Usually consumers and lenders precept the definition of a bad credit mortgage in a different way, this fact then leads to various misunderstandings.
Common Red Flags for Mortgages Lenders
Pattern of Delinquencies – it is a record of your late payments which is always possible to work around, but most lenders will give you much more scrutiny if such a record is not perfect; in the case of some problems with this paper you chances on getting not just bad credit mortgage but any second mortgages falls considerably.
Late Payments on Student Loans – in case you had any late payment on student loans within the past year, you are much more likely to be approved for conventional financing, something like FHA – governmental financing.
Late Payments on Mortgages – only one single late payment in the past year is permitted, but just in case you are able to explain it and provide your second mortgages lender with all the required documents.
Getting a Second Mortgage with Bad Credit
You should know about a thing called investor overlays. These are adjustments to guidelines or pricing which are created in favor of the lender. It is important to know because this is exactly that fact why one lender can provide you with second mortgages even with bad credit or minimal down payment, and another one cannot do the mortgage in some instances.
Later these are overlays which protect lenders against any potential future losses from the second mortgages they originate, conserving all the profit margins and buyback risks. In another way, it can shift the risk which is translated to cost – on to the consumer. This is done by limiting the ability to borrow via higher mortgage’s fee, it also reduces purchase price, or lowers debt ratio.
Note: Every bad credit mortgage lender has his or her investor overlays, it is the way how all mortgage companies operate, the crucial idea is to find and then work with that bad credit lender whose overlays are minimal.
Do Some Homework
- Credit score. Before applying for any bad credit or second mortgage check your credit score. Get a copy of your annual credit report free, this information can help you when choosing the appropriate mortgages lender.
- Documents. Get as many documents as you can to support your credit story and its challenges to be able to explain it to the lenders from A to Z if asked during the process of applying for second mortgages.
- Specification. When you are talking to any potential mortgages lender, always try to be very specific. Do not be afraid to explain everything in great detail about your needs and concerns. Give the most complete description of your situation. Also before even explaining anything ask the lenders about any special conditions that they have for their bad credit mortgage customers in order to save your time and money from the very beginning.
Some data for the article was taken from the Knowledge Base of Mortgage Canada Wide Financial Company that provides second mortgages in Toronto and GTA.