After the financial disaster of 2007-2008, the term “subprime mortgage” became very common and remains so. Basically any mortgage loan made to people with one or more less than ideal – or “optimal” – financial conditions is a “subprime mortgage.” This does not necessarily relate to the applicant’s credit score, but more often than not, it does. Obviously since the 2007-2008 debacle, poor credit mortgage loans are much more difficult to get, but they are not impossible. A well thought out effort to make everything look as good as possible and careful application can still get people with poor credit mortgage loans.
The first thing that someone looking to get a poor credit mortgage loan should do is begin improving their credit score as possible about a year before applying. Believe it or not,you can still find a bad credit lender. The easiest way is to work with a bad credit mortgage broker.
Their programs impose different conditions depending on precisely how bad the applicant’s credit score is. Most poor credit mortgage financing offered today is offered through private or “portfolio” lenders. This works much the same way as bad credit auto loans.
Any increase in the score can make a significant impact on what terms will be offered, so improving your credit score as much as possible long in advance of applying for a mortgage is definitely in your best interest.
Next, it is essential that the applicant have a stable income and at least some cash available cash. The idea here is that the lender wants to know that the borrower will be able to service the loan comfortably. Therefore, the applicant should not apply until they can document a stable income which is sufficient to handle their current debt as well as the new loan. Along the same lines, having at least some cash available in various savings schemes (savings accounts, CDs, retirement plans, etc.) will also significantly improve your chances of getting a mortgage despite having bad credit.
The lender will also look at your payment history. Having money available does not necessarily mean that you will use it to make your monthly payments in full and on time. If you already have a bad credit score, chances are that you have a bad payment history. One way of dealing with this is to build a nontraditional credit history, showing check stubs going back over a decent period of time that illustrate generally timely payment. This nontraditional payment history will have to be documented on paper and can be included as an addendum to your mortgage application. The point is to show that despite the occasional mistake reflected on your credit report, in general you do pay your bills on time and in full.
There are other factors that will be taken into account by the lender, but if you can cover the ones discussed here, chances are good that you be able to get a mortgage loan despite having poor credit scores.
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