Getting A Mortgage Even If You Have Bad Credit With Good Debt Management

Posted by Nick Niesen on October 29th, 2010

How can anything called a "bad" credit mortgage be considered good? You would be surprised that it is a good option for many people. It even can help some people improve their bad credit! That is one of the main reasons the people are attracted to bad credit mortgage financing, especially people who are having financial problems. How does bad credit mortgage financing do this much good? By consolidating debt.

First, let's start with the idea that bad credit is really not such a good idea. You should try at all costs to protect your credit rating and getting a bad credit rating in the first place. Usually, people end up with bad credit because they have defaulted on a loan or failed to make payments on their credit cards. Running up debt that you cannot afford will surely ruin your credit rating and your chances to get credit in the future. If you do get credit, you will pay a very high rate on it. But you can use a mortgage to consolidate that debt and save money. How, you ask, if I have bad credit? Even though your bad credit mortgage will be at a higher rate than a conventional mortgage, it will still be cheaper than other loans. That is because the financial institution has collateral, your home, to back the mortgage loan. Plus, you probably already have some equity in your home since you have been making your mortgage payments on it.

Having collateral such as your home for a loan makes a big difference in applying for a loan. Some lenders will insist on some collateral for a loan as a kind of guarantee for the loan. Here's how it works: the lending institution makes an assessment on the value of the home. If there is enough value in the assessment of the home, the lender will be willing to lend money on it. This is why a bad credit mortgage loan works if you have bad credit. Yes, the lender is still looking at your credit rating, so you will pay a higher interest rate, but the lender can fall back on the value of the home in case of default. If you can possibly negotiate a loan without collateral, that would be great, and you should definitely try that if your assessment of the home does not yield enough equity for the loan you want. There may be other things you can use as collateral for your bad credit loan.

Make sure you also check out all of the fees and charges, such as points, closing costs, application fees, etc. on the bad credit loan mortgage ahead of time. If you are paying too much in upfront fees, the loan may not be worth wile, since even with a lower interest rate, your overall costs will be too high. (Perhaps the equity in your home is too low to get a height enough loan) You have to add in these costs to see if the whole package is still worthwhile. It doesn't make sense to take out a loan and then pay so much in fees that you have hardly anything left afterwards.

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Nick Niesen

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Nick Niesen
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