Real Estate and Mortgage

What Are Bad Credit Mortgages?

What are Bad Credit Mortgages?

Before you look at any type of financing you need to make sure it’s right for you, and bad credit mortgages are no exception! Here we’re going to go over the benefits of these kinds of mortgages. Bad credit mortgages are great for people with bad credit, no credit, or just people who need to work on their credit. Just because you have bad credit doesn’t mean you can’t get a mortgage.

What is Bad Credit?

Bad credit can be a highly subjective term, but for most mortgage lenders it will be a FICO score under 600 points. If you have anything less than that you could have trouble getting a mortgage, even from bad credit mortgage lenders. You’ll want to first think about credit repair like debt consolidation; even if you do qualify for a bad credit mortgage you could wind up paying much more in interest where it doesn’t make sense to take the mortgage.

Is a Bad Credit Mortgage Right for You?

You’ll need to talk to a mortgage broker to make sure that this is the right kind of financing for you. There are many ways that a bad credit mortgage can go wrong; you’re going to want to be able to compare the interest rates from each mortgage, the terms, the reputation of the lenders. You’ll be able to make sure that you’re getting the most fair and equitable loan this way, regardless of what you need to mortgage for.

If you’re a first time home buyer and you need money for your down payment, a bad credit mortgage can help! If you’re trying to refinance your current home to purchase a big-ticket item, pay debts of send your children to university, these types of loans can help. You’re just going to need to be careful about how much of your equity you use as collateral.

Are Bad Credit Mortgages Hard to Get?

This really depends on your credit. If it’s teetering on the edge of the abyss, consider credit repair like debt consolidation. You will almost always be able to get this kind of mortgage regardless of your credit, but you’re going to want to improve your credit score as much as possible so you can avoid penalty interest points. These points can rack up thousands of dollars extra over the life of your mortgage. The purpose of a bad credit mortgage should be to get you on the road to somewhere better; if the mortgage offered will only keep you where you are or worse, don’t take it.

Guest Post By: Mike Smith blogs regularly and by profession is a mortgage broker. He works with Home Base Mortgage which is based in Toronto, Ontario, Canada. The company provides private mortgages, home mortgages, debt consolidation, mortgage refinancing, second mortgages and home equity loans.

Photo Credit: Copyright (c) <a href=’http://www.123rf.com’>123RF Stock Photos</a>

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18 Comments

  1. I am a mortgage broker/owner of Axcess Mortgage and Loans Financing in Hamilton, Burlington, Oakville and beyond, serving clients throughout Ontario.

    We arrange mortgages for bad credit and this is how we look at this subject – these types of mortgages should be looked at as a short term fix with an exit strategy that will help you recover financially and make your life better.

    In the short term these mortgages are definitely expensive — but not expensive if they are used as a solution to a much bigger problem or even a loss of your home.

    If used properly, through a knowledgeable broker, these instruments can be very useful and can get you back on track financially. Whether it is to consolidate debt, rebuild credit, save your home from a power of sale, a good broker will walk you through your problem to a successful future outcome.

    These mortgages are nothing to be ashamed of – even if you have bad credit, you deserve another chance.

    Lots of people experience setbacks in their lives and have too much high payment debt that is hurting their cash flow and a way of life. With the high interest charged by their creditors, they have difficulty with making their monthly payments only paying off interest and very little, if any, principal.

    A bad credit mortgage or mortgage from private lenders can consolidate all that expensive debt, depending on the situation, it can save hundreds in monthly cash flow and give you a chance to rebuild.

    There are many reasons people get in over their heads financially — loss of job, business failure, divorce, serious illness or disability, serious car accident, bad spending habits, bankruptcy, consumer proposal, etc. If this is you, don’t worry, you are not alone.

  2. I spent a lot of time having a “bad credit mortgage”. I didn’t realize that I was paying literally thousands of extra dollars a year due to the higher interest rates. Luckily a friend pointed this out to me and suggested I try Lexington Law. Now my credit rating is much better and I am saving much more money a year. I suggest giving Lexington Law a try if you have bad credit.

  3. The question is where do you find them? When we wanted to buy, we had a specific price point that we were looking for which would have given us a payment in line with our rent, but we couldn’t find anyone who would accept my wife’s credit score. She had a bankruptcy around the time we were getting married because of a bad car loan where the dealer LIED to my wife about what the payment would be. She never had a chance of paying that thing.

    1. Well I’m going to say you can find them with Mike who wrote the post in Canada but for the USA I have no idea. I’m sure there’s all the red tape and fine print but we won’t know unless we ask and find out. That’s sad that he lied to your wife. Did she not get a signed contract with a monthly figure on it? I would presume that would be the case when making a big purchase? What about taking him to court? Sad how people can be. Mr.CBB

  4. I have to agree with most of the comments here. Mortgages aren’t necessarily a bad thing for people who have had credit problems in the past as long as the source of those issues have been dealt with. Other things that should be considered is the overall cost of ownership which tends to be under estimated or ignored (property taxes, upkeep, repairs etc.) to ensure it is not starting another financial problem.

    One thing that isn’t mentioned in the post is about rebuilding your credit with a mortgage. In the past, your mortgage payment history was not reported but that is changing slowly with some lenders. So keep in mind if you are looking to have your bad credit mortgage help build your credit, that might not be effective.

  5. I’d be inclined to agree with the experts here and say it depends on your credit rating and such ….but…..if you are committed to improving your credit and working with a budget then it’s a maybe. If you can swing the mortgage and all the utilities we all pay with a house and the total is less that rent would be for your area, and you are working on a budget that you can show the lender that you are serious about improving things financially I’d say go for it. If you can do all this then maybe you could go for a better rate come renewal time. It may work out to short term pain for a longer term gain. But I repeat………you must be willing to work with the lender and work with a budget in order to jump through the hoops they will put in front of you…..

    1. I agree with you Christine as some people mention to build up credit again but for the most part lenders may not give you credit to build credit again. Not everyone wants or needs to rush out to buy a car either just to build up credit. Our friends were lucky the bank gave them a credit card which they had to pre-pay to build up credit, not all lenders are that nice. They were with the bank for many many years though. So for others this may be their only alternative if they want a home.

  6. Hopefully, you would address the problem that led to the bad credit before you took on a new loan. I would think it smarter to rebuild credit first then apply for a normal loan, but I guess if you have no other options, it would be something to consider.

    1. I have to agree with Kim here – I think that the best move would be to fix your credit score, repay your loans and qualify for a decent one. The rates are almost certainly going to be uncompetitive.

    2. I would hope yes that someone would address the bad credit first. You could do as you suggested just like friends of ours had to do which was to build up a bit of credit so they could get a mortgage as the husband was seriously injured and they lost everything they ever worked for in their lives, crushing, you bet it!

  7. There is always risk when signing up for these types of mortgages; however I don’t think you can go wrong as long as you’ve reviewed your budget and KNOW that the mortgage payment, insurance, taxes, and repairs can all fit comfortably. To add to that, I’d make sure you can get on a fixed payment and not have to worry about any adjustable rates mortgages.

    1. I agree with you Jason. Sometimes options might not be ideal to one but to another it is a life saver even if they are paying a bit of a higher rate. If someone made mistakes in their life or had problems beyond their control, this might help them out. Mr.CBB

  8. I am with Mandy in being curious about what rates are like in this situation. I’d imagine with the downturn a couple of years ago that it’s much more difficult to get a mortgage in this situation and that the rates would reflect that.

    1. If someone really want to own a home and they have all their debts under control or sorted than this could be the route for them. It’s worth investigating. I know a family who lost everything when the husband was injured at work and had to fight WSIB and I mean everything. The only way they could get a mortgage was to settle their debts (which they did) and then had to find someone to give them a credit card to build back their credit. I don’t know if bad credit mortgages were around or if it is what they got but they are now in a home and are very happy. Sometimes life can be unfair and debt doesn’t always happen because of negligence towards spending. Just like Mike says some people may want to use this for other things like their kids education but he does warn about it. Mike should drop in to shed some light on the topic. Mr.CBB

  9. I’m curious what rates are like on a bad credit mortgage? If you’re in a position where you only qualify for a bad credit mortgage maybe you shouldn’t be borrowing to pay for your kids school. They have student loans for that.

    1. I’m not sure what the rate is for this mortgage myself. Maybe Mike will pop in to answer that for us. Not everyone who has bad credit has it because they were bad with their money but they may have recovered financially but their credit score hasn’t. It’s one of those situations I think where you have to weigh the pros and cons. Cheers

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