While it is an unavoidable fact that people with better credit scores, 680 or higher, tend to enjoy preferential treatment from mortgage professionals, that does not mean that those with damaged credit are forever locked out of the home mortgage market. It does, however, mean that, in many cases – particularly if you fall into bad credit mortgage category with a score of less than 600 — you will have to work a bit harder to find the right mortgage opportunity for you. You should also expect to pay more for your mortgage, although there are ways that you can reduce those costs to a certain degree.
Lets Briefly Sum up the credit Scores to Understand things Better
Credit Score is a number, roughly between 300 and 850, that summarises a consumer’s creditworthiness.
The higher the score, the more able and willing a consumer is to repay a loan, lenders believe. The best mortgage rates and terms go to borrowers with credit scores of 740 and higher. Generally, a “low” credit score is in the “fair” to “poor” ranges below.
|740 and Higher||Excellent|
|661 to 739||Good|
|601 to 660||Fair|
|501 to 600||Poor|
|500 or lower||Bad|
3 Important things When it comes to Subprime Mortgages
- Credit Scores Are not Bothering the Lenders Now (Specially Post 2014)
- Understand the Difference b/w Irresponsible Borrowers and Ones who lost their Job
- Lets try the Low Credit Borrowers for 1 Year Minimum
Step 1: Lenders Look Beyond Your Credit Score
While most lenders use computer software’s like Fannie Mae or Freddie Mac to to run the loan applications through automated underwriting systems , few actually tally this result with their own understanding of the industry which includes looking at the files manually and studying real time dynamic factors like job scenario and circumstances of the borrower.
Step 2: Getting the Conversation Started
Once you clear step 1, You can get the conversation started if you can get a chance to prove that you have a good track record of the rent payment.
Step 3: Heating Up The Conversation:
Next step is to explain why you have a low credit score. Some of the common issues that can cause your credit score to drop but which lenders view as less risky are issues with a late medical bill or student loans. A default on a car loan would be much worse than those financial issues
Step 4: Offer Them More
Once you have them in loop, offer the bait of paying a little more interest. So just by spending a little more from your pocket, you can get a mortgage, and the next time you pay on time, your score automatically improves.
The bottom line is that, over the long-term, easy lending standards benefits both lenders and borrowers, as lenders are more sure their loans will be repaid and borrowers can be more sure that they will be able to afford to keep that beautiful home they are paying on and end up paying less for it.