As home prices tumble down all over the country, many renters are looking longingly at the real estate listings and wishing that they'd paid more attention to their credit rating. After several years of real estate BOOM, the bubble seems to have burst – or at least started to deflate. In May, the median single family home price was an astounding 12% lower than just one year earlier, and that trend was reflected around the country. While that's bad news for anyone who bought their home a year ago with the expectation of turning a profit, the falling price of real estate is very good news for those who have been waiting for prices to come down.
If you've been weighing the difference in price between renting and buying, the market has shifted enough in favor of buyers that the time to buy is now. Interest prices are down as the Feds try to stimulate the economy and encourage people to buy. Home prices are down as sellers have their homes revalued for the realities of the current market and willingly accept far less than they would have last year at this time. When you combine the two, you'll find that the cost of a mortgage PLUS taxes is actually less than what you're paying in rent.
Unfortunately, there's another reality at work in the falling market prices as well. New regulations surrounding the sub-prime mortgage market and the recent rise in defaulted mortgages and foreclosures have made lenders more wary of handing out bad credit mortgages – and made it far harder for prospective home buyers to secure any mortgage at all. The meaning of "bad credit mortgage" has changed significantly in the new home buying market, with a 'bad credit rating' being considerably higher than it used to be.
Still, all is not lost for those whose credit scores disqualify them for a traditional mortgage from a bank. Many finance companies are still quite willing to make loans to people whose credit is less than stellar, and most will offer you advice on how to get your credit into better shape, or what you need to do in order to be accepted for one of their bad credit mortgages. If your mortgage application has been turned down by a bank or major home finance company, here are some suggestions that may help you quality for a bad credit mortgage.
1. Shop around beyond the banks.
Banks are traditionally "safe" lenders. They don't take chances with their money, and lower credit scores are risky. While they'd started taking chances as the housing market exploded, the sub-prime mortgage collapse has sent them skittering back to their safe little ledge.
There are exceptions, though. If you have a long-term relationship with your bank and maintain multiple accounts with them, by all means check with your banker first. You may get consideration based on your history with the bank despite other credit snafus. Most people, however, will do better with finance companies and mortgage companies.
2. Increase your available down payment.
Lenders may be willing to make a loan to someone with lesser credit if they are seeking a smaller loan. The best way to reduce the amount that you need to borrow is to provide a larger down payment amount. If you can put down 10-20% of the total house price as a down payment, most lenders will take you far more seriously.
One of the recommended strategies for raising the amount of your down payment is to borrow or get it as a gift from family or friends. Be aware that many lenders are now looking at how long you've had that down payment money when they do credit checks. Obviously, money that you've saved is evidence that you're able to manage money, and will be a persuasive argument to lenders that you're a better credit risk than your credit score suggests. On the other hand, a large enough down payment may bring you down to a monthly payment that the lender is comfortable offering.
3. Get multiple quotes for a bad credit mortgage.
Another part of shopping around is comparing interest rates and terms. The best way to do that is to get quotes from several different finance companies, but there is a danger in doing that – multiple requests for your credit report can put a ding in your credit rating and make it even harder to get a loan. When you contact a finance company to ask about a loan, make it clear to them that you are shopping for the best possible interest rate and ask them to do a quote credit check, which will show up differently on your credit report than a full credit check.
Don't get discouraged if you can't get even a bad credit mortgage right now. Talk to the Montreal Mortgage broker about how to improve your credit score in the eyes of their company. In many cases, you can follow their advice and reapply in as little as four months with better results.
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