Sub Prime Lenders: Who Qualifies for a Bad Credit Mortgage?

When thinking in terms of qualifying for a mortgage loan, few people want to be grouped with bad credit applicants. Unfortunately, many people applying for mortgages are considered sub prime borrowers in the eyes of most lenders. Why? For one reason, most mortgage lenders establish high loan criterion.

For example, to qualify for a mortgage with a prime lender, the borrower must have a credit score of at least 680 – 700. Those who fall short must seek alternative mortgage lenders. Additionally, individual with several credit blemishes must look outside the box and choose a non-conforming or sub prime lender.

Qualifying for a bad credit mortgage is much easier than qualifying for a good credit mortgage. For starters, the majority of bad credit lenders are flexible, and do not place unreasonable demands on borrowers. Furthermore, these lenders recognize that life will have its financial ups and downs. Thus, a negative credit rating is often unavoidable. Here are a few situations that justify a bad credit mortgage approval.

1. Recent Bankruptcy or Foreclosure

Depending on who you talk to, some experts will discourage consumers from financing a home immediately following a bankruptcy or foreclosure. The logic behind this thinking makes perfect sense. After a bankruptcy or foreclosure, your credit score is practically in the toilet. In some cases, a person’s credit score can plummet into the 400’s or 300’s. If your score is this low, getting a mortgage is impossible, unless using a private investor. On the other hand, if your score was only mildly damaged, perhaps falling to the low 600’s or high 500’s, getting approved for a home loan is doable. Of course, this generally involves a very high interest rate. Still, obtaining a mortgage is the fastest way to raise a low credit rating following a major credit crisis.

2. Excessive Debt

Even if your credit score is good, traditional mortgage lenders will not approve a prime loan application if your debts are too high. This could consist of excessive credit card debt, accompanied with high student loan payments and other consumer loans. Individuals with a high debt to income ratio have higher odds of defaulting on the loan.
Fortunately, bad credit mortgage lenders are not as concerned about a high debt to income ratio. Although these lenders may approve a loan request, the borrower may pay higher fees and interest.

3. Too Many Past Due Accounts

Paying bills late or skipping payments is never a good idea. Aside from lowering your credit score, this action may also kill your chances of obtaining a good credit mortgage. Understandably, mortgage lenders do not want to take a gamble with individuals who’ve established a bad payment history with existing creditors. Credit reports reveal late or missed payments. Thus, mortgage lenders have access to this information.

4. Collection Accounts and Judgments

If attempting to apply for a mortgage loan, consider settling collection accounts and judgment. Some mortgage lenders have strict stipulations when it comes to these types of accounts. Moreover, bad credit mortgage lenders place limitations on the number of collection accounts and judgments allowed.

5. No Credit History

Before applying for mortgage financing, having previous credit history is helpful. This might include financing a vehicle, opening a line of credit, or obtaining a major credit card. Mortgage lenders base home loan approvals on the contents of a borrower’s credit report. If a borrower has no previous credit history, this is usually an automatic denial. Fortunately, bad credit mortgage lenders offer loan programs which these individuals in mind.

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