Getting A Mortgage If You Have Bad Credit
So you've had some rotten luck over the last year, or few years. A bad divorce or serious medical problems. Your boyfriend took you for everything. You got involved in junk bonds, and lost everything. The outcome is- your credit stinks. And you'd love to stop paying rent and buy a house, get some equity, have some security in knowing that the place you live in is going to stay put. You can. It's not as easy as it would be if your credit smelled like roses; it's not going to be as cheap as if you had perfect credit. But it's still possible. Finding a Mortgage Broker The first thing you have to realize is that, by not having good credit, you fall into the sub-prime mortgage market - this means that, because you are seen as a higher risk than someone with good credit, you are going to be charged a significantly higher interest rate than a good credit borrower. This decreases the buying power of your dollar. The first thing you should do is start saving every penny you can to put on your down payment. Each dollar you put down on your house decreases the amount of money you must borrow (and thus pay back with interest) and may decrease the interest rate you'll be locked into. Mortgage brokers can help you get reasonable mortgages despite bad credit. Because they deal wholesale with lots of banks, it's easier for them to find a loan for you in a higher-risk category that doesn't charge as much for a loan as a bank lending you money direct would. Fixing Your Credit Now that you have the mortgage, it's imperative that you make every payment every month. Once you've made regular payments for a certain amount of time, your credit score is going to start improving. So you took out your loan at 12%; your equity is being paid up at a snail's pace. Even when you put every extra cent you have toward the principal of your loan, you still feel like you're getting nowhere. But you're paying your mortgage every month, and it's a lot better than paying rent. What happens? Three years later, your credit score is improving. Bad debt is falling off, and it's being replaced with records of regular payments and slowly-increasing assets. Now is the time to refinance that 12% mortgage with something in the range of - 6%, maybe. That doesn't mean that the amount you pay a bank in interest is cut in half. Depending on how far in your loan is it could cut the amount you pay in interest by 80% or more. It could cut your monthly mortgage payments in half, though you'd still be making up the principal at the same rate. But you don't make it up at the same rate. Instead, you continue making the same payments you were making before refinancing - your equity is increasing at an alarming pace, your debt is going away, and your credit rating is that of a grownup! Magic. But you can do it. Getting the Mortgage On Budget You will absolutely have to put together a budget for yourself to work this magic. You'll have to stick to it as if it were religion - as if your life depended on you making your budget numbers. If you can have payments made automatically from your bank account, you should do it; that way you won't even miss the money. But once you've gotten yourself into the habit of following a budget, you'll wonder what on earth you used to spend all that money on. Five years after that high- interest bad credit mortgage, you have good credit, a home, lots of equity, and nothing but sunny skies ahead. And you did it yourself. Congratulations.
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