Getting a Purchase Loan in Spite of Bad Credit

By Gina Pogol
Mortgage Credit Problems Columnist

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Reputable bad credit mortgage lenders help people become homeowners. A study in Atlanta, Georgia found that "growth in subprime lending expands borrowing opportunities for those who might otherwise not qualify for a mortgage." Good lenders want you to know your rights and avoid rip-offs.

The Danger Signs of Bad Credit Predators

Ethical bad credit mortgage lenders want you to beware of predatory or illegal lending tactics used by some companies. Here are some warning signs that the "bad guys" might be taking advantage of you:
  1. They pressure you to buy a single premium credit life insurance policy to get your mortgage. No reputable bad credit mortgage lender does this. The Association of Community Organizations for Reform Now (ACORN) is a national organization working to end the abuse of low income people in the housing market. ACORN calls this type of insurance "the nation's worst insurance ripoff," and advises consumers to avoid lenders who push this product.
  2. They put a Mandatory Arbitration Clause in your mortgage agreement. Look for this carefully. It means that you are signing away your right to sue the lender, even if the company lies to you or rips you off. Predatory lenders don't want to end up in court, where the sleazy things they do become public knowledge.
  3. The bad credit mortgage loan includes a prepayment penalty longer than three years. A long prepayment penalty does not mean that the lender is trying to mislead you. However, FNMA (Fannie Mae) considers this predatory unless the lender gives you a benefit, such as a lower rate, in exchange for taking the prepayment penalty. The lender must also offer you a loan without a penalty, so you have a choice.
Predatory bad credit mortgages hurt everyone. Know your rights and don’t let a bad mortgage lender take advantage of you.

Association of Community Organizations for Reform Now (ACORN)

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