Most people would expect that a bad credit rating would make it impossible to get a mortgage to buy a home - but it's not as simple as that. Can you buy a house with bad credit? The short answer is YES, but it is not all that easy.
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Unfortunately bad credit can haunt you for the rest of your life. If there are bankruptcies or foreclosures on your credit report, you know how hard it is to get any line of credit.
Lenders and creditors simply look to as a too big of risk to loan money to but we know that, even though mistakes were made in the past, your financial situation and behavior can be reformed.
Some lenders understand this as well, and the sub prime lending market has grown and become very competitive.
The Lending Market
The lending market can be broken up into two main segments, the prime, those with average to good credit who are not huge financial risks.
While many people would consider their home or their car to be their most valuable asset, it's your ability to earn an income that is most important in shaping your financial future.
Statistically, two thirds of working Australians will suffer an injury or illness that will sideline them for 90 days or more.
The majority of these people would not be able to pay their mortgage or meet car finance and other loan commitments without adequate income insurance.Then there is the sub prime market, with those who have poor to very bad or no credit.
Lenders can give ratings to a certain sub prime client giving them a rating from A-D: A being the best rating and D being the worst.
When you fall into the C or D category, you are considered very high risk and more likely to default on a loan than that of a person with an A or B rating.
Sub Prime Lenders
Sub prime lenders generally give loans to even the highest of risk cases.
They look at the same information that a prime lender would look at to evaluate the type mortgage you can have.
They look at credit history, income, expenses and long term debt. If you do have foreclosures, bankruptcies, delinquent payments, and outstanding debt, they will take all of this into consideration.
If you can show steady employment, a good income, an effort to pay back the money you owe and are doing it in a timely fashion, you are more likely to get a better rate than that of someone who is not taking any steps to fix their credit.
Sub prime lenders can loan the money you need by protecting themselves. They do this through higher rates and fees that prime lenders would not charge.
A Word of Caution
Be careful, because some sub prime lenders have been known to take advantage of your poor credit history and charge a ridiculous amount in fees and charge you a too high of interest rate even for a poor credit case.
Fortunately for the consumer, this sub prime market is extremely competitive and you do not have to accept the first lender who offers to loan you money. You actually have the luxury to shop around and compare rates, even for the worst of credit cases!
So check online for tools that can aid you in finding and comparing sub prime lenders. The internet is a good place to start your research.
You can also ask for referrals from family, friends and even local bank. Don't allow credit mistakes in the past to dictate how you live your life today.
Buying a home is still an option regardless of your credit history. And, as long as the sub prime market continues to be competitive, you, the consumer is at a huge advantage.
It is always a good idea to take steps to repair your credit, and buying a home can aid in this.
If you make you mortgage payments on time every month, then you can watch your credit grow!
Sub prime lenders specialize in this area, so allow them you help you make your credit score even better!
Be sure the sub prime lender you use is trustworthy and qualified. There are sharks in the industry, so be sure to ask for references and look at licenses.
So, go buy your home and repair your credit at the same time! Take advantage of the opportunities you have at your fingertips.
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