Mortgage borrowers have been classified differently according to their credit score. Their credit scores are determined by their payment history, public records, the length of credit history, new accounts inquiries and accounts in use.
To get such home loans, one has to meet specific standards and qualifications. Below is a structure of the best mortgage rates being used at the market.
- 740 and above- Excellent
- 661 -739- Good
- 601-660- Fair
- 601-600- Poor
- 500 and below- Extremely poor
For instance, the FHA loan provider which is widely known offers loans for as little as $580 while those with FHA Bad Credit Loans must make a downpayment of at least 10%.The big dollar question is what about the low credit score citizens who cannot offer such down payment?
Statistics show that in 2005, one out of every 7 loans were approved for borrowers with a scoring credit of below $630, in 2013 one out of 500 borrowers had a credit score that low. Such results are due to some lenders stepping in to provide a mortgage for the low credit score home borrowers. The higher the score of a borrower the higher the willingness of a lender to grant a mortgage.
Qualifying for a low credit mortgage
Lenders are becoming more lenient to people with bad credit mortgage. Low credit score home borrowers seek refuge to secure subprime mortgages from such lenders. These lenders are considered to have risk appetite to lend even though there are still several requirements required from the borrower. Lenders use software with loan applications through the automated underwriting systems which are Freddie Mac or Fannie Moe. If a loan does not make it through automatically, one can alternatively take the manual route to enquire why the credit is low. Other lenders approve low credit score borrowers with a recoup criteria. This gives full jurisdiction to manage the subprime loans.
Through applications such as Desktop Underwriter and Loan Prospector which automatically approve the amount of loan one can get based on the borrower’s income, credit score, and debts. Low credit score borrowers can increase their chances of getting mortgages by ensuring one pays rent on time, has minimum debts such as medical bills, student loans and having a clear bank record. For instance of one pays $500 house rent monthly and has a low credit score payment should not go beyond $750.Borrowers who lack a credit history and a low score too have to explain the situation. Lenders consider some less risky if the poor credit history is out of issues to do with medical bills and student loans. Lenders need to judge and determine if borrowers are irresponsible applicants or those who lost their jobs. Those who lost their jobs are highly recommended in order to minimize their struggle in the tough economy.
Procedure of securing a subprime mortgage
- Ensure you provide lenders with all your information and the ideal property that you wish to acquire. All loan documents, pay slips and other documents re to be forwarded to the lender.
- Provide a clear explanation as to why your credit score is low. Possible reasons may be due to disabilities illness, unemployment, and other unavailable life issues. The underwriter might consider making a consideration.
- A low credit score borrower may consider person with good credit to be a co-borrower to getting the mortgage. In case of failure of the borrower to pay on time, the co-borrower may chip in and pay to avoid lowering the borrower’s personal credit score.The lender ensures the borrower is first educated and given full information on how the mortgage works and its payments to avoid any challenges to pay. The borrower has to understand their own situation to avoid applying for a large mortgage which may be declined.
Alternatively one might consider paying an ideal down payment of 20% of purchase price for the home but still, for as little as 3.5% can qualify you for most down payment mortgage options. In other cases, subprime and also conventional mortgage borrows need not to pay any cash upfront. The top subprime mortgage lenders for poor credit offer loans designed to offer homeownership opportunities to consumers who want credit score may not meet the minimum standard of a tradition lender who might have a higher cost-to-debt income ratio.
These lenders include
- Loom lenders
- Carrington Mortgage services
- The Lenders’ Network
- Home loans for all
- Sebonic Financial
In case one has difficulties following the procedures he can contact a mortgage broker to aid or directly contact the concerned company for assistance.