Mortgage Loans With Bad Credit
What is the difference between good credit and bad credit?
Basicly one creates bad credit when they borrow money and do not repay it according to the terms of the agreement.
If you borrower cash or buy something like a car or other retail merchandise on credit and either don't repay the cash or don't pay for the retail items that you purchased then you are creating a bad credit rating for yourself.
If you don't make your payments on time or don't pay the full amount of the payment due then you are creating bad credit for yourself.
If you don't make your payments at all or stop making payments then your credit item may turn into a collection item or even a court ordered judgment against you. Then your bad credit becomes worse.
So who and what decides if you your credit is just a little bit bad or a whole lot bad?
All your borrowing and re-payment activity is recorded about you by three major credit reporting agencies. These are Equifax, Experian and TransUnion.
When you borrow money or buy something on credit then the creditor reports that transaction to the credit bureaus. If you miss a payment or are late with a payment then that is also reported to the credit bureaus and goes into your credit history file.
These bureaus have each developed a scoring algothrim that is used to analyse your credit history to determine if you are likely to repay any future credit that is extended to you. If your score is too low then you will be declined for future credit for which you apply.
This could be a car, a credit card, a cell phone or a mortgage for a new home. Different lenders have different minimum scores at which they will approve your credit application. For instance to get a credit card your score does not have to be as high as to get a mortgage on a new home.
In the case of a mortgage loan, your score may be at an acceptable range but there may be other things on your credit report that have to be cleared before you will be approved for a home loan. Some of these things are court ordered judgments, tax liens and delinquent student loans.
Today most lenders require a middle credit score of 620 before your application for a mortgage loan will even be considered.
There was a time before the mortgage mess, that one could still get a home loan with lower scores and a fair amount of bad credit showing on their credit report but that is not the case today.
Buying A Home With Bad Credit
If you have bad credit which is keeping you from getting approval for a loan to buy a new home, then you can work on improving your credit scores and/or you can find an individual that has a home for sale and is willing to hold a private mortgage for you.
If you are going to look for an owner held mortgage then be prepared to put some money down. Most of these people are not willing to take a 100% of the risk so you can have a home. Be prepared to show them that you are willing to take some risk also by putting your money into the deal.
Make it your goal to work on cleaning up your credit file and improve your credit scores so you can refinance your loan later with a traditional lender; probably for a lower interest rate.
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