As joblessness has increased in the US, there continues to be a significant increase in mortgage delinquency for the last quarter. Initially sub-prime mortgage holders are blamed as their bad credit mortgage introductory rate period has come to an end, but now prime credit mortgage holders are facing difficulty as unemployment grows. According to a LA Times report more than 13% of US mortgage holders are either behind with their mortgage repayments or are facing foreclosure. As more and more people with clean credit records face falling behind with their repayments the demand from people looking for a bad credit mortgage soars.
The problem however is not the demand but supply of lending from the banks. As more and more financial institutions are becoming unsound, others are hoarding their bailout money for the possible worse times ahead. The so called bailout is bailing out the banks but not the businesses and borrowers who really need it. On a more positive note, there jobless figures showed a decrease of .1% from June to July, nothing to get excited about but at least it’s a move in the right direction. The new administration’s housing affordability program is helping but people are complaining that their applications, extensive and detail paperwork, are getting lost in the system. Loan modifications are are slow to materialize and in the event that they do so, people are still going to have to pay up later rather than sooner.
The State of California looks particularly bad as unemployment beats the national average, but due to it’s diverse economy and notorious up and down housing market some expect it to lead the recovery. Some agents are seeing people step back into the housing market as prices seem to have hit bottom, and there appears to be a pick up in San Francisco and Orange County.
The glut off people with good credit means that in order for the economy to make progress it will be necessary or people with bad credit to be given mortgages. It’s the only way to get cash circulating and breathe life into the comatose property market. The banks have no right to look down on people with bad credit records when they themselves have blemishes on their record. Lets hope they don’t take a ‘holier than thou’ approach – if they do they could extend this recession even further, thus cutting off their nose to spite their faces. Perhaps President Obama will look out for the people on the ground and push banks to release their hoard of cash sooner rather than later, so maybe an increase in spending by Christmas may set the US on the road to economic recovery. It seems too far to rech to expect to see home flippers, the heart of the last housing bubble, returning any time soon unless people with bad credit can get a mortgage to purchase their handiwork.
Poor financial management can lead to debts being unpaid or regular payments being missed, this in turn leads to credit reports reflecting the fact that you haven’t kept up to date with your financial commitments and therefore may be a lending risk. In the case of one or two missed payments it is normally possible to speak to your creditor and explain why you have missed the payments, bring the account up to date and all is well. However, in the case of regularly missing payments or consecutive missed payments, this kind of behaviour is reported to credit agencies which will make a note of it against the relevant account on your credit report.
It is important to keep on top of financial commitments, as not doing so can lead to penalites, debt collection agencies becoming involved and worst case scenario being taken to court or forced to go bankrupt. However, many people struggle to manage their finances effectively and find themselves in the situation where their credit report tells potential lenders that they are a high-risk which in many cases is reason enough for credit applications to be declined. It is in these situations that people find themselves turning to specialist lenders who can offer loans, credit cards and mortgages to people deemed as high-risk.
If you find you have been rejected for credit, it is worth getting a copy of your credit report to get an idea why – it is not uncommon to find errors on your report that will go against you, all you need to do is call the credit agency and explain the error to them and ask them to correct it. If you have been rejected for credit don’t just keep applying in the hope that an application will be accepted as each application requires a search on your credit record, and each search leaves a footprint showing what it searched for and why. Multiple searches in a short space of time will only drive your credit rating down, which if you have been rejected already is the last thing you need. Check you credit report and if it is showing you as a high-risk debtor then you will need to approach a specialist company to help you get a bad credit mortgage. These companies balance the risk they are taking by asking for higher deposits and charging higher interest rates than most high street banks, and of course the loan is effectively secured on the property so there will always be some form of recompense should you default on your payments.
When you have to apply for a bad credit mortgage, there are many different routes you can take. Because the process is different than applying for a regular mortgage, it may be beneficial to seek advice before you make any applications, making sure you go for the right kind of mortgage first time is important as too many searches on your credit report in a short space of time will not work in your favour.
Ideally you should already have a copy of your credit report, so you can make sure that everything on there is correct, and also so you know what potential lenders will be seeing. Understanding credit reports is farily simple so you should be able to get some idea of how low your rating is. Finding a company that deals with poor credit lending is the next step. This is where things can get a bit tricky as there a many companies offering credit to people with poor payment histories, or bad credit ratings, even to people who have been bankrupt. Making sure you choose the company that is right for your needs is very important, as going with the wrong company could well end up costing you more than necessary with arrangement fees and interest payments.
It may well be to your benefit to approach a mortgage broker who specialises in high risk lending. You will of course have to pay them a fee, but the advise and specialist knowledge that they can give you can save you a lot of money in the long run. They will have a good knowledge of the types of mortgages on offer, and will be able to advise you based on your credit situation. While a lot of the time with regular mortgages it is cheaper to go direct to the lender, the nature of bad credit mortgages means that brokers are often the route to the best deals.
If you are not comfortable in going through a broker then you will need to do your own research into companies offering mortgages to people with low credit ratings, which can be done quite easily online, then approach them individually, explaining your circumstances and going through details such as your income, current debts, employment status etc. in order to get accurate quotes you can compare. It can be a lengthy process, but it is one that is worth carrying out properly to make sure you get the best deal available to you.
