Bad Credit Mortgage Loans: How They Can Help

By Karen Lawson
Mortgage Credit Problems Columnist

If you have bad credit, you may worry that you can't qualify for a mortgage loan. Ultimately, your ability to get a mortgage loan depends on individual circumstances including your current income, recent credit history, and employment status. Getting a bad credit loan may also be useful for rebuilding your credit.

Getting a Bad Credit Loan for Buying a Home

If you want to buy a home, preparing to talk with lenders can help you know where you stand before you contact mortgage lenders. Using free online mortgage calculator tools can help you determine if you're ready to buy a home. It's also important to produce documentation of current income, assets, and employment.

If you have credit blemishes that need explaining, get whatever you need to prove your situation to potential lenders. If you were unable to work due to medical reasons, have your doctor's note and a letter from your boss handy.

When shopping for bad credit mortgage loans, you can expect to pay higher interest rates and lender charges, but there is some good news:

• A bad credit mortgage can help you achieve the benefits of home ownership: The interest you pay on your mortgage may be tax deductible. You also have the potential for building equity that can add to your financial security. Consult a tax professional or financial advisor for specific information relating to your circumstances.
• Rebuilding bad credit: Making payments on your mortgage will eventually help you raise your credit score. This will take time, but consistently making payments on or before their due date and avoiding late charges is a good way to strengthen your credit.

If you have a mortgage with unfavorable terms and/or a high interest rate, you may qualify for refinancing to a fixed rate mortgage with stable monthly P&I payments..

Refinancing to Improve Your Finances

Bad credit refinancing may improve your finances in these ways:

• Reducing the interest rate of your current mortgage loan
• Eliminate unfavorable mortgage terms that may include rapidly changing payments or negative amortization
• Provide extra cash for consolidating debt and bringing past due accounts current.
• Streamlining debt management by rolling several payments and your current mortgage payment into one monthly payment.

You may be able to consolidate debt without refinancing your current loan if you qualify for a home equity line of credit (HELOC). A HELOC works like a credit card; you are assigned a credit limit only pay interest on amounts used. A HELOC is a mortgage loan, and your home can be taken in a foreclosure if you fail to make required payments.

Source
Taking a Loan to Pay off Credit Cards Nov 28,2008

About the Author
Karen Lawson is a freelance writer with more than fifteen years of experience in mortgage banking. She holds an MA degree in English from the University of Nevada, Reno.

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