Mortgages : Adverse Credit Mortgages 101

So you don’t have a sparkling credit score- welcome to the club! For whatever the reasons may be, perhaps an unpleasant divorce that may have lead to bankruptcy, repossession of a vehicle, or home foreclosure, you’re not alone. You can still get a solid mortgage (including decent terms) through an adverse credit mortgage lender.



Since your credit score is low, you will have to pay a significantly higher interest rate (up to 5% more), and possibly private mortgage insurance (PMI- to insure that the loan funders are able to get their money back in the unfortunate event that your home is foreclosed on and you owe more than it’s worth). This doesn’t mean that you should pay more than necessary, or should be a rip-off target; you just have to know what to look for and how to protect yourself. If you know what you’re up against, it’s much more difficult to be overcharged.


First, be sure to shop around to get the best price, rate and program. Many mortgage lenders will tell you things like “Mortgage rates are going up” and “I’m not making a dime off of this one!” just to get you to sign on the dotted line. Don’t sign anything unless you are 100% comfortable with the situation, and don’t be afraid to say “No!” or “I’ve gotten a better deal somewhere else!”



Next, ask about points. A lender can charge you these “fees” which are each equal to 1% of your full loan amount. This amount is on top of any loan origination fees and other costs associated with the loan. Points can be “hidden” or referred to as “discount points” (which would get you into a lower mortgage rate), and are typically rolled into the loan amount so that you don’t need to bring any cash with you to the closing, thus, increasing your loan amount.



Thirdly, is your new mortgage a fixed rate or an adjustable one? A fixed rate means that your interest rate will never increase for the life of the loan (usually 15, 20 or 30 years). On the other hand, an adjustable rate translates into an interest rate that starts out very low (usually substantially lower than a fixed rate) and will increase at the end of a predesignated timeframe. Most homeowners with an adjustable rate mortgage (also known as an ARM), refinance their mortgage when the rate is about to increase. Another way to look at an ARM is that you are going to have to go through the entire mortgage process again, within only a few years, including the part where you need to pay the closing costs, points, and other lender fees all over again.

John Cassidy recommends you visit http://www.123-mortgages.co.uk/mortgages/bad-credit-mortgage.php to learn more about adverse credit mortgages.