subject: Getting A Home Loan With Bad Credit: Is It Possible? [print this page] When it comes to bad credit, it is not a matter of whether or not a borrower can get the loan so much as the risk involved for both lender and borrower. What borrowers must consider is the risk involved given their current credit score and the type of loan which they are willing to take. Since the devil is in the details, lets look a little closer at some of the most important information for borrowers with bad credit scores.
Get a Credit Report
As a borrower, you may know that you have a less than desirous credit score, but it is important as you begin your search for a loan to know exactly where you stand. Every citizen is entitled to one free credit report per year, available through Equifax, Experian, or Transunion. This report is graded on a scale from 300-800 points and is an important key for the borrower to measure the severity of their bad credit. Generally, below 620 is not considered great, however the difference between 500-580 could be the difference between a high interest unsecured loan or a modest fixed rate home mortgage. Your credit report is not only a chance for you to assess your credit status, but also argue potential discrepancies with credit lenders.
Look Around You
As any good consumer knows it is always best to shop the market. Assess your credit: for those with poor but not terrible credit it may be possible to secure a low or fixed interest rate loan through alternative programs from top lenders Freddy Mac or Fannie Mae. For those with a very low credit rating, your options will be more limited, so you will want to look carefully around for the loan with the least risk. The internet can be a powerful resource of information, but be sure to go through secure websites with known lenders, preferably within your home state. Request information before committing to any kind of agreement and be wary of any lender that promises a quick-fix.
Remember when looking around for a loan, submit your original credit report or request only a quote credit check. Requesting a full credit check several times a year from various companies can actually lower your credit score. Also, be sure that the company you choose reports your payment history to credit bureaus, otherwise you may receive no credit for good credit behavior.
Strategize: Risks and Advantages
Lower your risks by avoiding long-term fixed interest rates and prepayment penalties more than 3 years. Prepayment is a penalty for paying off your loan too early and can seriously affect interest rate and payments. Try to look ahead within the time frame of 3-5 years and see your loan only as a temporary solution to repair your bad credit. When you have successfully paid off your loan you should find yourself with a better credit score and ready to refinance at a lower APR. Let us consider a few of the most important loans for borrowers with bad credit and the potential risks and advantages.
An ARM, or adjustable rate mortgage, is a loan with an initial low interest rate and lower payment rate. This is a good loan for a borrower intending to stay in their home for 3-5 years. The period during which the interest rate stays the same is the adjustment period. As the name implies, after this point the interest rate will be reevaluated and adjusted according to a variety of national indices. While this loan may allow a borrower to save money in the beginning of the loan, they must also be prepared to make higher payments at a higher interest rate after the adjustment period. Despite this risk, an ARM is a potentially great loan for a borrower that needs to improve their credit score within a relatively short time period.
A bad credit mortgage is another option for those who already own property and intend to keep it indefinitely. A borrower may have the option between a high interest rate with no fixed penalties, or low payment with a slight drop in credit score. In the case of someone who already has bad credit, its best to take the loan with lower payments and begin saving immediately. Like the ARM, a borrower will not want to carry this loan for more than about 5 years. After this period you should be ready to refinance.
Finally, remember to communicate with your creditors. While credit seems only a number on paper, remaining honest about your financial situation and negotiating your credit problems can actually improve your standing greatly with debtors. By proving that you are not a high risk, a lender will be more willing to work with you in consolidating debt and improving your credit score.
by: mor123
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