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.
There are many situations where people find themselves unable to obtain the type or amount of credit they need. This is more often than not caused by poor credit ratings or bad credit history. Lenders have to assess many different criteria when deciding whether or not to lend to someone, and if these criteria are not satisfactorily met then more often than not credit applications will be declined.
The situation when it comes to lending for bad credit mortgages is slightly different, as there is security for the lender in the form of the property the loan is being taken out for. However, the criteria for borrowing will still be different than those for a regular mortgage. The lender will want more information on you, your financial background and current financial status than a regular mortgage lender may required. You will need to be able to proved you are in stable employment, have a regular income and also have cash available for a down payment. You can also expect your credit history to be gone through with more scrutiny than normal. It is in the lenders interest to make sure you are credit-worthy, and while you made be high-risk due to past bad credit, it is still possible to get a mortgage.
The type of product you may be offered will differ from standard high-street bank products. This is because the lender is exposing themselves to more risk as far as they are concerned. It is common to find that large deposits are required when taking out a bad credit mortgage, and interest rates may well be higher than average which again reflects the perceived risk the lender is taking.
Reading the full details of the package you are being offered is essential, as you don’t want to tie yourself into a bad credit mortgage deal for longer than you have to. After a year or two of regular mortgage payments, you should be able to re-mortgage with a regular bank or building society and get much better rates. Look out for things such as exit fees, early repayment penalties and long term fixed rate deals. While these may seem like they are going to get you the best deal possible at the time, in the long-term you could end up paying higher rates for much longer than is necessary, so bear in mind that by getting a mortgage you are giving yourself the opportunity to re-build your credit history, payment history and bring up your credit rating which means standard credit will be available to you in a year to 18 months. A lot of companies that offer bad credit mortgages rely on people tying themselves in for the long-term on unfavourable rate deals without thinking about the future.
