Most mortgage lenders, both national and local, have one or more programs designed to provide mortgages to people with bad credit. The fact that the borrower has bad credit suggests that there is more risk involved with lending to this person as opposed to someone with good credit. This risk is offset by lenders by charging a higher rate or interest and/or shortening the time span of the loan. It usually means that the borrower will pay more and will have larger payments covering a shorter period of time.
Potential borrowers with bad credit should first take the time to improve their credit as much as possible. The terms offered usually relates specifically to the borrower's credit score at the time of applying and so even a slightly higher score may significantly improve the terms available. Every time a person applies for a loan, his score goes down a bit, so it is better to do as much credit improvement as possible before applying. Doing basic credit maintenance like looking for and removing errors, paying off outstanding balances and other basic credit repair should be finished several months before applying for the mortgage.
The lender will also want comprehensive documentation detailing the borrower's current financial situation. This includes documenting the borrower's regular income, regular expenses, current savings and assets as well as current debt. Compiling all of this information, along with all of the relevant documentation (pay stubs, tax returns, bills, etc.) saves both the lender and borrower a considerable amount of time.
The borrower should also explain why their credit is bad and document this as well. Explaining what happened and the measures being taken to correct the problem can make the difference between being approved or denied for the mortgage. If many of the problems on the borrower's credit report relate to payment history (the history of paying in full and on time), these items can usually not be removed for seven years. However the applicant can compile a nontraditional payment history, showing that the overwhelming number of bills over a significant period of history have been paid in full and on time. This, of course, also has to be comprehensively documented but will probably be looked upon positively by the lender.
The whole idea is to convince the lender that despite having bad credit, the person applying for the loan is still a good bet. Any manner of documentation that helps convey this message to the person reviewing the mortgage application should be included. Despite the fact that most lender's have strict guidelines on what they are willing to offer people with bad credit, explaining why the bad credit is there and showing a good faith effort to correct can impress the person reviewing the application.
Wendy Polisi is one of the founders of creditrepaircollege.com. To learn more about getting a bad credit 2nd mortgage and mortgages with bad credit please visit her on the web.
Article Source: http://EzineArticles.com/?expert=Wendy_Polisi
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