Top 5 Mistakes about Bad Credit Mortgages
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Top 5 Mistakes about Bad Credit Mortgages
A high risk mortgage becomes inevitable when the loanee accumulates bad credit, which translates into increased interest rates, prepayment penalties and foreclosure costs. It is therefore important to ensure a good credit score is at hand before investing in a mortgage. Poor credit mortgages give the loanee a chance to rebuild his credit quickly though the lenders are cautious about proof of steady income and their monthly payments have strict guidelines. However, there are loanees who still make avoidable mistakes in bad credit mortgages.
Shopping for the Best Mortgage
The fact that a loanee has received a pre-approval from one bank should not give him the audacity to obtain their financing from them. It is important to consider the best bank or lender before looking into a bad credit mortgage. Alternatively, the loanee may consider hiring a mortgage broker with the ability to shop a comfortable rate with several banks concurrently and get best terms, even with lesser rates. However, the loanee should make sure the mortgage broker has carefully evaluated each option including the closing costs. The poor credit mortgages an individual chooses should be reasonable in its payments lest the loanee realizes the low payments in the beginning were just interest payments or negative amortizing, which depicts the mortgage balance will keep growing with each month. If the loanee has to consider taking another loan, it is important that this should not be at the expense of his debt-to-income ratio.
Total Housing Payment
Any mortgage payment includes the Principal, Interest, Taxes and Insurance (PITI) and failing to factor in property taxes or insurance premium into the total mortgage budget makes the process problematic. This shows the loanee did not cautiously calculate his debt-to-income ratio and accurately determine his credit score. The loanee must not only prove consistent in their monthly payments, but it must also come from their stream of income. Poor credit mortgages lenders do not consider cases where the loanee gets cash transfer from a relative a few days before paying the mortgage as part of being consistent. In other words, they do not tolerate seasoned assets for more than a couple of months.
Despite a loanee being in a bad credit mortgage, the one thing that must not be forgotten is checking their credit score often. This will help him in avoiding another bad credit score, which may result into another set of increased mortgage interest rates and without further approval. Checking for any changes in the credit score ensures that the loanee is on track and has a backup plan in case he loses his job, gets injured or has a new job that pays much lower. This feature goes along with avoiding under any circumstance applying for other credits when still servicing the mortgage. Applying for other credit loans comes with an increase in credit risk. For example, getting a credit card or an auto loan may bump up the credit score to deny eligibility for emergency loans and even shoot up interest rates.
Loanees should at all costs avoid moving from one job to another as it may affect their stream of income, as underwriters only consider the loanee is able to pay his monthly payments with a consistent flow of income in the foreseeable future. It is only understandable for a loanee to change jobs if the new one has better financial capacity according to the underwriter’s report. This, along with a poor credit mortgages pre-approval depicts how well the loanee is able to manage his monthly payments. The pre-qualification not only depicts potential with the current debt-to-income ratio, but it also earns the loanee a written commitment from the lender depicting to home sellers that he is able to successfully purchase the home.
Loanees should understand that any mortgage rate does not mean anything unless it is locked. If the loanee is comfortable with the current rate, he should lock it. This is because mortgage rates keep on changing with seasons, sometimes severally in the same day. The loanee might keep quoting what he prefers but unless he expresses this intent formally, the bank, lender or broker will not process the lock. Locked rate come with a guarantee for a limited period ranging from a week to a few months. It is important not to assume the rate has been locked unless it has been put in writing.
Looking into mortgage matters after a serious foreclosure should be a warning enough for a loanee to be extremely carefully as a poor credit mortgage may extremely lower his credit score or disapprove it completely. It is the responsibility of the loanee to take note of the aforementioned mistakes, and read the terms and conditions carefully before signing up.