Know Your Credit Rating

Your credit score is one of the biggest factors in determining the points you will pay for your loan. People with scores between 620 and 800 have near perfect credit and will have the lowest rates and fees. Scores between 620 and 550 mean an interest rate or two higher. 600 is usually the cutoff point for 100% financing. Scores less than 550 mean mortgage interest rates are up to 5% higher with up to five points. Lenders will also require a down payment between 5% and 20%

You can find your score online along with your credit report. This is a good time to make sure all the information is correct on your record. Any discrepancies should be checked out and corrected before applying for a loan.

Know The Fees

Arm yourself with information so you will know what are reasonable fees for your type of loan. Mortgage brokers are paid for their work through points paid up front or through the lifetime of the loan by the lender. Lenders also make money through points.

It is reasonable to expect to pay up to five points for a mortgage loan, but any higher and you should be wary. There are always exceptions to this, so use your best judgment and compare companies.

Get Multiple Offers

Mortgage lenders can vary as much as 5% in their interest rates, so you should compare financing packages. The internet has made comparison shopping easy. You can get bids from multiple lenders and read over their offers from the comfort of your home.

Read The Fine Print

Once you get an offer from a mortgage lender, make sure you read the fine print. Interest rates are easy to compare, but you should also look over the fees that are involved which can add up to thousands of dollars. Also, be sure to understand any fees for late or missed payments.

It is the goal of all Americans to own their own home.

Unfortunately, along the way, some of us get sidetracked. It is a tough world out there especially as it relates to credit and home buying. And frankly, many Americans get their dreams derailed, many times through no fault of their own or through circumstances that were beyond their control.

When a person ends up in credit trouble, or when things like job loss, medical conditions, divorce or bankruptcy become a part of a persons reality, hope for home ownership gets bleak and many people give up on their dreams and settle for a lifetime of renting.

This is where Lease Options (when done properly) can be a perfect solution to the challenges at hand.

If you are still renting, this list might describe some or all of your current circumstance?

• You probably don’t have much money saved for a down-payment
• You have too many credit cards or credit accounts open
• You have delinquent accounts and collection agents or attorneys asking you for payments
• You may have past legal problems such as judgments, divorce, bankruptcy, or foreclosure
• You have been told to wait for a year or more before being able to buy a home
• You probably feel frustrated as you try to find the perfect answer to your home buying needs.
• You have already been turned down by a lender (or couldn’t get one to take you seriously if you tried)
• And you are most likely, TIRED OF RENTING and TIRED OF BEING REJECTED.
• Probably the most damaging effects that poor credit will have on a person is that you feel like you’ve run out of options.

The truth of the matter is that if you want your own home and you have poor credit, you only have two real options. You must either:

1. Wait for your credit to get better or your circumstance to change and then at some point in the distant future you can go out and find a home to own. This could be anywhere from a 1-5 years depending on how bad off your credit actually is.
This is the “wait and keep renting” method. (I usually don’t recommend this)

OR

2. You must find an investor/owner who is willing to overlook your problems and give you a chance to prove yourself through some means of “owner financing.”
The safest and best way to do this is with a Lease Option through a trusted and proven investor/owner who has a win-win scenario for making this happen. (This option is highly recommended – if you do it properly)

Let’s explore a few specific reasons why a Lease Option is such a good idea.

If you enter into a Lease Option with an owner/investor, you will get to live in the home “as though” you already owned it. This means that you instantly get to start enjoying the lifestyle benefits of ownership.

What literally happens is you will agree on price and terms of your purchase of the home immediately. Then, since you can’t get your own home loan quite yet, the owner will agree to rent/lease the home to you for a period of time (6 months-2 years) and As Soon As you can get a home loan within that time frame, you will “exercise” your option or your purchase agreement and cash out the owner/investor.

So basically, you get to move into and virtually “buy” a home, even before you can get your own loan because of the flexibility of the owner.

Some benefits are:

• No landlord dictating to you what color you may or may not paint your home or living room wall.

• No waiting on a landlord to keep your house in working order. You take care of the home as though you owned it already.

• You can make maintenance and home improvements to your house or yard helping you to enjoy the home as your own.

• Much of the market appreciation and equity growth on the home can actually become your equity when you buy the home from the investor.

• You can do these Lease Options with ZERO credit. Or even with BAD credit.
AND – Perhaps one of the BIGGEST benefits…

• Lock in ‘tomorrow’s purchase price’ today.

And this is huge because as you know, real estate appreciates over time! Your home will be worth more next year than it is worth today, and when you can lock in a specific price today, and pay that price tomorrow… YOU can come out a big winner.

Just remember, when you get into a lease-option, to spend as little as possible in down payment money and do what ever it takes to get your credit turned around as fast as you can, which is what you should want anyways.

Most importantly, don’t look past the ultimate goal. Buying a home through a lease option is your “tool” to get into the home of your choice, even before your credit or down payment challenges would have otherwise allowed you to.

Stop settling for a standard rental and go find the home of your dreams.

Buying a home with bad credit enables you to start rebuilding your credit score. You can also enjoy the thought of growing your equity, a valuable investment. Besides these common benefits of homeownership, with a subprime mortgage you can also avoid PMI, have flexible terms, and qualify easily.

No PMI Premiums

Private mortgage insurance (PMI) is required for conventional loans when less than 20% is put down. Subprime lenders don’t have this requirement, so you can save hundreds a year on this common mortgage cost.

Without a PMI requirement, you can easily get into your new home with zero down. You will have slightly higher rates. But, you should also realize that if you refinance for conventional terms, you will have to have PMI if your equity is less than 20%

Bad Credit Loans Have More Flexible Terms

Subprime lenders also offer more flexible terms for people with poor credit. Besides presenting adjustable or fixed rates, lenders also offer balloon payments or interest only. You can also borrow more than the conventional loan caps, also known as a jumbo loan.

You also have the option of buying down rates by paying points at closing. This is a good deal if you don’t plan on refinancing or moving in the next seven years. A refinancing option can also be part of your loan terms.

Bad Credit Loans are Easier To Qualify For

Subprime mortgages are easier to qualify for than conventional loans. Bad credit isn’t a hindrance. Neither is a high debt to income ratio or small cash reserves.

Adjustable rate and interest only loans can help you qualify for more. The trade off is the security of a fixed rate. However, ARMs can have caps in place to protect you from rapidly rising payments and interest rates.

However, you can expect to pay slightly higher rates with such lenders. The reason is that the risk level is higher with such loans. Depending on your credit situation, rates will be 2% or higher.

Comparison shopping will help you find the most reasonable lender. Also check with traditional lenders, since they are also in the subprime home loan market. With a little bit of time, you can find a mortgage that will help you enjoy the benefits of owning your own home.

I want to buy a home, what if I have a good down payment but a low credit score?

When a lender is considering a prospective client for a loan, it goes something like this: What is the score? What is the credit history? How much money do they have for a down payment?

Sure, a gigantically large deposit can help to cover a spotty payment history. However, you should be prepared for the absolute worst in fees and interest throughout the life of the loan.

In short there is no way around it. Even with a good deposit, you will need a supporting score and accompanying history to make home ownership a reality.

This was true before the credit crisis and now in the midst of many banks collapse, a sound score and report is more vital than ever.

When I’m asked about low scores and high down payments, I am always curious to know whether the client has done anything to try and improve their score. To the uninformed consumer your score can be a murky area. With minimal effort you can obtain a copy of your report and see exactly what is there. Often, costly errors are the cause of low scores.

Having cash on hand gives you the power to negotiate and settle your old debts. When you settle your debts, negotiation that in exchange for you payment the negative mark will be removed from your report.

If you are not inclined to solve the errors your own, it might be wise to consider the help of a good credit attorney. For a surprisingly reasonable monthly fee and aggressive lawyer will tackle the problem of cleaning up your report and boosting your score.

Another fallacy is that it takes too long to repair your score. Nothing could be further from the truth! While it can take several months, to a year in the more severe cases, cleaning up a bad report is always a smart move. Even in the worst scenarios of taking a year to turn yourself into a good risk you can save untold thousands in finance charges, fees and the like when you finance or borrow.

In conclusion, if you have a large deposit and a low score, good! Turn your situation from good to great by taking some positive action today. The money you save will be your own!

The worst thing about buying a home with bad credit isn’t that it is that difficult. It is the fees and interest rates you’ll have to pay for your home mortgage loan. Use the following techniques to repair that credit and so lower the rates you’ll pay. If you can’t take the time to do that, see part two for some other options.

Buying A Home With Bad Credit – Part One

If you have the time to do it, you can fix that bad credit, at least a little. This will not only make it easier to find a lender, but also get you a lower rate. Pay 2% less on that mortgage loan interest rate and you’ll save more than $70,000 in interest over the years (based on a 30-year $140,000 loan). Here are some ways to fix that bad credit report.

First, see what’s on it. To get access for free online, try a search for “free credit report.” If you are denied credit based on a report from a local credit reporting agency, you can request a free credit report from that agency within 30 days. How do you fix what you see on the report?

If there is anything to dispute in the report, write a letter to the agency. Explain exactly what is incorrect, and they must investigate. Send copies of canceled checks or any other documentation by certified mail.

The agency has to (by law) contact the source of the disputed information. If they don’t receive confirmation of the debt within 14 days, they have to delete the item, and send you an updated report. You can also demand that they send a corrected report to all creditors who received your credit report in the previous six months. This won’t be done automatically, so be sure to demand it.

If the item is under $500, or over a year old, creditors often won’t bother to respond. Thus, “fixing” a credit report is possible even if it is correct to begin with. You also have the right to dispute the item again after 30 days.

Longer-term, there are other things you can do to fix your bad credit. Stop charging things on credit cards. Don’t have more than five credit cards. Keep balances to less than half the limits on the cards, even if this means transferring debt from one card to another. Stop making your credit score worse, and time alone will help (many items will be removed after seven years).

Buying A Home With Bad Credit – Part Two

Buying a home with bad credit doesn’t mean you have to accept the high interest rates and fees of sub-prime lenders. You can buy a house in other ways. Here are some of them.

- Seller financing. Some sellers are willing to provide the financing for you to buy their home. Whether in the form of a “contract for sale” or an owner-carried mortgage, you may be able to make payments to the seller instead of the bank – and with no lending fees and lower interest.

- Lease option. If down payment is an issue, look for sellers willing to lease their house to you with an option to buy. Be sure that a portion of the lease payment applies towards the down payment for the home, and that you have enough time to prepare for the purchase. If, for example, only $200 of the rent applies towards the down payment, after two years you’ll have just a $4,800 credit. Will that be enough? Will two years be enough time to correct your credit and save any additional money you’ll need?

- Get creative. There are many creative ways to buy a home. In one case I know of, the landlord was anxious to move, so the buyer offered him full price and a decent interest rate for him to carry the financing, but with very little down. They closed in the first days of the month, so the small down payment came from the rents that were credited to the buyer. He moved into one of the units the following month.

- Reconsider your “bad credit.” Limited income or a new job isn’t the same as a bad credit score. Most banks won’t even look at the income from your new business, for example, making it seem impossible for new business owners to get a loan. However, these days, banks really look at your credit score. If it is decent, you can get “no doc loans,” which require no documentation of income.

You don’t even need a job for these loans. A decent credit score – and nothing else – can get you up to 95% financing at many places now. Of course, depending on the credit score, the interest rate can be anywhere from 1/2% to 4% higher than conventional loans. Consider paying even higher interest to get a loan without fees if you will be able to refinance at a lower rate in the next year (perhaps once your new business hits that 2-year mark that bankers like to see).

Fortunately, buying a home with bad credit or even with no provable income, has become easier than ever.

Buying a house with bad credit isn’t as hard as most people think it is. In fact, it’s possible to get 100% financing. You simply need to get the lender to concentrate on other things besides your bad credit. Read on to learn more.

Credit history is important, but it isn’t everything. When buying a house with bad credit, all you need to do is show that you have other positive attributes as a borrower.

Income Verification

Bad credit can happen, especially if you have had financial difficulties in the past. The important thing is that you make enough money now to pay your bills, in particular, a mortgage loan payment. If a lender is able to verify your income, and see that you make a reasonable amount of money, buying a house with bad credit is possible.

Down Payment

Having a down payment makes the process of buying a house with bad credit much easier. Most lenders will be able to work around any credit issues you have if you can put anywhere from 3-10% down on your loan. Though coming up with a down payment can seem difficult, there are several options that are available to you. Consider borrowing from friends or family. If that’s not a possibility, you can try to get a grant or a personal loan.

Private Mortgage Insurance

If you don’t have a down payment, you can work around it by paying for private mortgage insurance (PMI). PMI protects the lender from default and makes buying a house with bad credit and no down payment possible for many borrowers. The cost of PMI varies depending upon the amount of your loan. In some cases, it costs as little as $20 per month, in other cases it will be more. Either way, you should be able to drop the PMI after a few years.

The next thing to do is research. Find a couple of mortgage brokers that specialize in people with credit issues. You can find a specialist in local real estate newspapers and (free) magazines. There advertisements are usually announce the following: We can help you buy a home regardless of credit history – bad credit, no credit and foreclosures.

There are also programs such as ‘purchasing a home with the option of buying’. The homeowner or landlord will make a fair arrangement with you. You will be required to leave a down payment between the amounts of $3000 – $8000 (the higher the deposit, the less you have to pay monthly).  If you pay consistently without any late payments, they will place a percentage of your monthly rent towards the purchase of the home that you will be renting. After a 12 to 24 month period, the landlord or homeowner will turn your lease into a mortgage. This will not only make you an official homeowner but it will help your credit rating. Make sure that all transactions are done in writing. Hire a lawyer to review the terms and conditions of your ‘rent with option to buy’.

If renting with the option of buying is not your cup of tea, there are other options. You can buy foreclosed homes at annual tax sales. In most states, you do not have to have good credit to purchase a home. The county or city tax office is only concerned about one thing: a cashier’s check or a money order for the full amount of the sale. The tax office could care less if you were unable to keep up with your monthly cable bill for the Showtime Movie Channel. If the tax bureau had to keep score of who has good or bad credit, they would have a difficult time selling houses.

You can find out further information on how to buy a home with bad credit on the Internet. To find out how to get a listing of yearly tax sales, contact your county or city’s tax claim office. You can also find out further information on a credit specialist on the Internet.

How to Benefit the Most from a Bad Credit Mortgage Loan

Bad credit mortgage loans have several benefits. Many people avoid these loans because of the higher interest rates. Instead of focusing on the negative aspect of bad credit mortgages individuals should reflect on the fact that these mortgages can help improve credit rating. Higher credit scores will qualify you for better mortgage rates in the future.

Although individuals with poor credit have options, it is important to take necessary steps to help improve your credit score before applying for a home loan. Moreover, when the time comes to find a lender, shopping around is essential for locating the lowest rate.

Make Slight Credit Improvements before Applying

Improving credit score is a long process that requires determination and patience. If you are hoping to buy a home with past credit problems, it’s wise to fix credit issues before applying for a mortgage. Credit has a huge role in the approval process. Lenders prefer good credit applicants. Nonetheless, they are willing to work with those who have a low credit score.

Having good credit opens the door for many financing options. Furthermore, better mortgage rates are offered to those with a high score. There is a difference between having bad credit and terrible credit.

If you have bad credit, getting approved with a comparable rate is doable. However, you must search for a good lender. On the other hand, if you have very bad or terrible credit, it may be more beneficial to delay buying a home and make credit improvements.

Request Quotes from Multiple Lenders

Shopping around for the best mortgage rate is critical for homebuyers with bad credit. Too many lenders prey on individuals with a low credit rating because they have fewer options. The key to avoiding a lender’s scam involves shopping around and comparing quotes.

Fix Your Credit First

Before you start shopping for a mortgage, make sure that your credit report is accurate. Follow up with the credit monitoring service to make sure all errors are fixed. You can get a free copy of your report from several companies.

While credit events remain on your report for up to ten years, they cease to be important after two years. So with a bankruptcy three years ago, it is possible to qualify for an “A” rated mortgage.

But there are other factors that determine your loan rates, such as your cash reserves and the size of your down payment. You can qualify for a conventional loan rates even with a poor credit score.

Avoid The Wrong Kind Of Lenders

There are companies that would take advantage of your credit situation. They would have you believe that with bad credit, you will have to pay huge closing costs or rates double or triple of conventional loans to buy a home. Run from these lenders.

Subprime lenders offer bad credit loans at one to two points higher for each drop in credit rating. And loan fees are comparable to conventional loans. In order to find these companies, you need to request loan quotes.

With online lenders, you can receive these loan estimates within minutes. Based on your personal information, you can get a realistic picture of your loan costs and mortgage payment. And when financing through a subprime lender, you don’t have to pay for private mortgage insurance if your down payment is less than 20%.

Keep An Eye On The Future

When negotiating your mortgage, make sure you have the option to refinance in the future. Ask for no early payment fees, so you won’t have to pay thousands if you choose to move or refinance.

Which Lenders Offer Mortgages after Foreclosure?

Traditional mortgage lenders such as banks, mortgage companies, and credit unions rarely offer loans to those with a past foreclosure. However, some traditional lenders will offer sub prime loans to those with poor credit. Sub prime loans are intended especially for people with a low credit score. If your home was recently foreclosed, you likely have a negative credit rating. In this instance, a sub prime loan is helpful.

Although some traditional lenders offer sub prime loans, there selection is limited. Moreover, these lenders may require a down payment. If you are hoping to get approved with no money down, it may help to apply with a lender that specializes in bad credit mortgage loans.

Finding Sub Prime Mortgage Lenders

The easiest and most effective means of finding a good sub prime lender is through a mortgage broker. Brokers can be found locally or on the internet. Online mortgage brokers allow easy loan comparisons. Making comparisons are necessary for ensuring you get the lowest mortgage rate possible. If comparing quotes without a broker, you will have to contact each individual lender. This can be easily avoided by using a broker.

Benefits of a Mortgage Loan Quote

Neglecting to obtain several mortgage quotes may cost you thousands of dollars throughout the life of the loan. When requesting a mortgage quote after a foreclosure, you must provide the lender with accurate information in order to receive a precise quote.

Once the lender reviews your information, they will remit a rough quote. Loan quotes consists of estimated mortgage rate, loan terms, monthly payments, etc. Quotes are no-obligation. Thus, you have the right to refuse or accept a lender’s offer. Lender comparisons can aid a person with choosing the right lender, and help bad credit applicants avoid deceitful lenders.