What's the deal with these mortgage loan companies that advertise "bad credit no credit okay?"
You've heard the mortgage lenders barking their bad credit, no credit loans on television and radio. "Even if you have been turned down by another lender, you will be accepted by XYZ mortgage no matter what kind of credit history you have or what crime you've committed. We refuse no one because everyone is human, subject to bad breaks once and awhile. Why should you be penalized for circumstances beyond your control." Their pitch sounds too good to be true, and oftentimes it is.
Bad credit, no credit loan programs are primarily aimed at people with bad or no credit history. In exchange for the added risk a lender assumes on the loan, the borrower usually pays a sub-prime, higher interest rate. Common sense should remind the borrower with bad credit that applying for future credit gets harder, not easier. Repairing ones credit history should be paramount to re-entering the conventional credit and mortgage loan market.
Most people with a bad or no credit history should be fortunate that such loan programs exist. But they should also realize that such loans usually carry high interest rates and/or points. (A point is one percent of $200,000 or $2,000.)
A typical profile of a bad credit risk would be the following:
DTI (debt to income ratio) of 50% or higher
FICO (credit history) score of 620 or lower
Low LTV (loan to value ratio)
Little to no discretionary income
Bankruptcy within past 60 months
Two or more 30-day delinquencies over the past 12 months
One 60-day delinquency over the past 24 months
Foreclosure over the past 24 months
Some mortgage lender spokesmen claim that current rates for bad credit risks are the same as good credit risks and that times have changed for the credit compromised borrower. But it's not as easy as they claim. Borrowers should be aware of the differences between ethical and less than ethical lenders. Some unethical lenders use predatory practices that corner the borrower and saddle him with excessive rates or points.
The borrower has recourse against less than scrupulous lenders. The Home Ownership and Equity Protection Act of 1994 protects the borrower from lender malpractice. This act provides legal protection for the borrower in case the lender is found to have used deception and misrepresentation in the act of selling a loan. The Truth in Lending Act (TILA) sets new rules and regulations against lenders attaching excessive high rates and fees to certain types of home loans.
It seems that more of these bad credit, no credit loan programs are populating the airwaves with claims of instant mortgages for borrowers. But just as the lender should beware of exposure to bad credit risks, the borrower should also beware of lenders with usurious or excessive rates tied to high-risk loans.
Buying a house with bad credit is difficult. Most people spend a lot of time saving for a down payment and repairing their credit before even attempting to purchase a home. In fact, personal loans for people with bad credit generally have higher interest rates and stricter terms. A borrower without a bankruptcy or foreclosure with a 600 FICO would receive an interest rate of 5.875% and pay a monthly payment of $1183 on a $200,000 amortized loan. You can see that filing bankruptcy or having a foreclosure on your record, even with a FICO score of 600, results in an increase in a mortgage payment of $215 over that of a borrower without a bankruptcy or foreclosure. However, that difference in payment will let you buy a home.
It is quite necessary to know the key elements for a strong credit score and how they will impact your home loan. One of the most impaction is a record of consistent and timely payments. Never break your payment schedule but else could take the assistance of Payday Bank if find any problem regarding arranging cash.
Most Lenders will require a 640 score these days, however there are still a few Lenders that can fund FHA loans with a 580 credit score. We have access to these Lenders and will refer you to a reputable Lender that can help you with low credit score. We have helped hundreds of borrowers with scores under 620 get approved for financing. Visit our site if you would like us to find a Lender that an help you get pre approved.
FHA and VA loans are secured by the Veterans Administration for VA's and the Federal Housing Administration for FHA loans. VA loans are great because they require no down payment, no mortgage insurance and technically have no minimum credit score requirement. Most lenders require a 640 score for VA or FHA loans, however there are lenders willing to go down to a 580 score for both types of loans. A great place to find these lenders is The Lenders Network. I've seen people get approved for financing with scores under 600 before.