A lot of people are facing tough times these days. Rising unemployment, falling real estate prices, scam artists bilking investors out of their life savings, stores and businesses folding or moving their operations overseas ― these are all symptoms of a faltering economy.
People who once lived a comfortable lifestyle are pinching pennies and struggling to pay bills. Others have simply stopped making their mortgage, credit card, and car loan payments and have wound up having their homes and vehicles repossessed. In many cases, this misfortune can result in damage to an individual’s credit report and makes obtaining a mortgage seem virtually impossible.
Fortunately, there are some lenders willing to extend credit and mortgages to high-risk borrowers. It’s the old “risk-reward” trade-off. Commonly known as a sub-prime lender, the mortgage lender will gamble that a borrower will pay back the mortgage loan in exchange for the lender charging a much higher rate on the loan.
With real estate prices at historic lows, many lenders are not as concerned about the risk as they were before because even if the borrower defaults, the lender can foreclose on the property and possibly sell it for more at a later date. Bad credit mortgages are on the rise and sub-prime lenders often request additional documentation from borrowers, such as pay stubs or tax reports to substantiate income, in addition to credit reports.
Credit and mortgage scams are also on the rise, as many people with bad credit are desperate to buy a home and look for ways to obtain financing. Many of these homebuyers are lured by promises of credit repair companies, who claim to be able to wipe off negative information from credit reports for a fee. The Federal Trade Commission (FTC) warns people to be wary of such companies because they cannot do anything for you that you can’t do for yourself.
Although you may have bad credit now, you can take steps to repair it. You can visit the Federal Trade Commission Credit Repair website for more information. You should also spend time investigating legitimate lenders who can help you obtain credit and a mortgage.
With increasing scrutiny from the federal government about banks’ lending practices, lenders are looking more closely at credit reports, especially around mortgage closing time. If you are considering making a large purchase (such as a car or a boat), or you’re applying for a line of credit, it would be wise to wait until after your mortgage settlement date to ensure that your credit report does not reflect negatively on your rate or even kill the deal.