Bad Credit Mortgage
Overview
Getting home loans with poor credit can be quite a hassle, unless you know where to look and how to access these loans.
What is a bad credit mortgage?
This is a type of mortgage that is also known as a “subprime mortgage”. It’s a type of mortgage that is usually extended to individuals with bad credit scores.
The credit system was established in the 1950s and it has found increasing popularity in latter decades. Credit bureaus keep record of individuals who have credit agreements with registered credit providers. Credit scoring is the method through which credit risk is assessed. The higher an individual’s credit score, the lower the associated lending risk and vice versa.
Bad credit borrowers are seen as having a larger-than-average risk of not following through with the terms of the loan.
Financial institutions regard these individuals as high-risk and they are charged high interest rates as a result.
When bad credit mortgages are structured, individual credit scores determine how high interest rates are. The amount of the down payment for the property is also a factor taken into account.
Lenders are more likely to structure a variable mortgage rather than a fixed rate mortgage in the case of bad credit mortgages.
A bad credit mortgage is also likely to have a balloon payment penalty as well as a prepayment penalty.
Indicators that you may be a candidate for a bad credit mortgage:
- Foreclosure within the past 24 months
- Bankruptcy within the past 24 months
- Debt-to-income ratio of over 50%
- Inability to cover family living expenses during the course of the month
Factors that are considered:
- Late or non-payments
- Current amount of debt
- Types of credit accounts
- Credit history length
- Inquiries on the credit report
- History of applying for credit
- Bad credit behaviour
