Getting a Mortgage Loan With Bad Credit By John A Collins

Many people feel that the American dream is to own their own home. Owning your own home gives a person a feeling of stability. If you own your own home you don't have to deal with the landlord if you want to paint the living room iridescent orange. How do you get a home mortgage if you have bad credit?

Today there are many lenders who will make home mortgage loans to people with bad credit. The first thing you need to do is find out what your credit score is. There are many services on the Internet that will provide you with your credit score. Depending on the company that you get your credit score from you will receive a letter grade (A - D) or a numerical value, typically 800 - 400. The letter scores are just like school grades A being the best and D the worst. The higher the numerical value, the better your credit score.

If your credit score is low however do not despair. Many lenders make home mortgage loans to people with bad credit. These are called "subprime" loans because the person taking out the mortgage is not considered a prime (low risk) borrower.

If you are a subprime borrower you have a couple of things to remember. One is that your interest rate will be higher than a borrower with good credit. The second is that you will pay more points at the closing of the mortgage. A point is 1% of the total amount of the mortgage. This is the fee that the broker or bank receives for placing he mortgage. Placing a mortgage for a borrower with bad credit is more difficult than placing one for a borrower with good credit. Consequently, more work for the broker means more pay for the broker. People who have good credit ratings mean less risk for the lender and less work for the broker. This translates into less cost for the borrower.

When you are looking to obtain a mortgage with bad credit, it is advisable to ask multiple brokers for quotes. When looking at the quotes, interest rates and points charged can be compared. Comparing multiple lenders allows the borrower to make an educated choice in whom to choose as a lender. One thing to be cautious of in acquiring a mortgage with bad credit is that the mortgage may have a pre-payment clause in it. The prepayment clause may require large monthly payments from 6 months to 2 years before the mortgage can be paid off before the term of the mortgage.

Mortgages are available for people who have bad credit. They will cost more than mortgages for people with good credit. One of the things that can be done to reduce the cost, is that the person with bad credit could delay the buying of the house and utilize the time to improve or fix their credit. If that is impossible, the person with bad credit will find many lenders willing to give them a mortgage to purchase a home. The money is out there; it will just take a little more work to acquire.
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