Mortgage companies have a fairly rigid criteria by which they will give a mortgage to someone. They are essentially giving you a large amount of money so they have to protect their interests. They have to determine whether you are a safe bet and that you are using the money sensibly. If you are buying a house they will get the premise surveyed to determine if there are any risks involved and the price you are paying is a fair value for the building. They will check your personal background and financial details. Namely, they want to see how much money you are earning, assets that you may have and your credit rating or score. People with a bad credit history may find it hard to get a mortgage because they are seen as a risk to the mortgage company. In this case they need to go for a bad credit mortgage. This article will explain what a bad credit mortgage is and what to look out for when applying for one.
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Bad Credit mortgages will suit people that have had some credit problems in the past. This is generally reflected on their credit score or history. Bad credit loans may also be useful to people who cannot meet some of the standard mortgage criteria. Notably, they have a low income, are self employed and don't have steady income or cannot put the required 20-25% deposit down on the house.
Unfortunately the companies that offer bad credit loans are not doing it as a public service. They want to make money out of the deal thus they will generally have higher interest rates tied to the mortgage. There may be other things that they charge the applicant for that are more than a standard mortgage application. The closing costs could be higher or they may not allow the closing costs to be rolled into the mortgage. There may be higher penalties for overpaying or underpaying the mortgage. There may be fees for canceling the mortgage.
The last point is important because bad credit mortgages should be seen as a stop gap. You should use them to get out of a bad credit situation. You should work towards getting your credit score better or getting a sizable deposit together so that you can refinance the mortgage to a better deal. A deal where you satisfy the criteria and can shop around for the best deal. The mortgage industry is very competitive so that gives more power to you as a consumer to get the best deal available. See a financial adviser if you are bewildered by the choices or use the Internet for research.
It is also important to shop around for loans with bad credit. Although they will not be as common as standard mortgages there is still enough of them around such that you can look for more flexibility or a better rate.
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