When making that first major purchase like a car or your first property, personal credit is used to secure the finance necessary to complete the sale. But over time, as we stretch ourselves financially to maintain an adequate standard of living, circumstances can affect the strength of our credit.
If you’re looking to refinance your existing mortgage to get cash equity out of your property but you are a little worried as to whether you’ll qualify because of weak credit status, there is what is called bad credit mortgages available for people with similar circumstances.
Bad credit mortgage loans are known by the financial term sub-prime home loans and are offered by selected group of lenders who specialise in these types of mortgage loans.
These lenders have different lending criteria which do not follow the same rigid guidelines as traditional mortgage loans obtained at banks or credit unions.
Lenders in the sub-prime sector allow for credit problems that traditional lenders would not normally consider. What this means for borrowers with a shaky credit history is that an application for a sub-prime mortgage loan would have a good chance of receiving approval, even in instances of poor credit history.
Sub-prime mortgage lenders actively seek out potential clients with poor credit of which there is a large pool of funds made available.
People who have had bankruptcy, foreclosure judgements, late payments or collection accounts in their credit file are all eligible applicants for sub-prime mortgage loans.
The severity of your credit history will determine the interest rate you will pay with sub-prime mortgage loan, which will be higher than the traditional convention loan.
Bad credit mortgage loans can be used by people with a history of poor credit as a way to rebuild their credit profile. Over time, roughly two to three years, once credit is re-established and their credit score is higher, they are able to refinance at the lower rate conventional loan.
Not all lenders will make sub-prime loans, so knowing if a prospective lender offers sub-primes is important because not only will you save time, but it will also prevent pointless enquiries into your credit report. Having multiple enquiries by different lenders could work against you if a potential lender finds you have been unsuccessful in your previous attempts.
Having a shaky patch in your credit file should not be a deterrent to investing in property or obtaining the necessary financing. It may be a little more costly to obtain your loan, but by no means impossible.