First of all, remember that there are really three primary things that any mortgage lender is interested in when providing home financing. In no particular order, these are cash flow, credit, and collateral, or the three “C’s”.
If you have weak, poor, or even bad credit, the mortgage application is going to have to focus more heavily on the other two.
And if you have good cash flow and don’t require more than 80% of the value of the real estate being offered as security, you’re always going to have some different financing options to consider.
For instance, with cash flow, there are both institutional and private mortgage financing options that are going to be higher than “A” credit rates of of course, but the stronger cash flow and collateral are, the closer these “B” lending rates are going to be to the better rates out in the market place.
As cash flow and collateral also deteriorate, so will your options for financing, with the rates and fees going up as well as there will be less lender supply for these types of deals.
Many times a bad credit mortgage is a short term requirement of a borrower to provide them with the time necessary to get their credit back into line so they can qualify for a lower cost mortgage over the longer term.
In terms of your credit, just because its bad doesn’t mean it doesn’t come into the equation.
Lenders are interested in why its bad, how it got that way, and the composition of reported events that have lead to your current credit status.
For instance, someone could be on the other side of a divorce where cash flow got messy and are now in the process of rebuilding credit and have shown marked improvement over the last 6 months as an example.
In this case, credit is moving in the right direction which can assist with the financing process.
So knowing your credit profile as it is reported and being able to explain why it is the way it is can also be helpful to lender in that you can show you do understand how your credit has been damaged and you can hopefully describe your plan for improvement.
While this in depth credit profile knowledge is not necessarily required to get a bad credit mortgage, it can help you get a better bad credit mortgage which saves you money over time.
So when applying for a mortgage with bad credit, the more you can demonstrate how you plan to secure the lender from risk and repay the mortgage on time, the more options you’re going to have.
When all elements of the credit assessment are weak, you can still potentially get a bad credit mortgage, but at a much higher cost with a very little tolerance for any late payments.