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Bad Credit Mortgage Loan

When I was a Mortgage Broker some five years ago in 2002 in Vancouver BC, one young man is his mid thirties came to see me to ask if he can qualify for a mortgage. One catch though, he has a bad credit.

Is there such thing as Bad Credit Mortgage?

My answer was a simple Yes! but we need to work on it a little more diligently. It is a myth that people with bad credit cannot get a loan or mortgage from the bank. Someone with bad credit will however have a harder time getting a mortgage loan. He or she may be charged a higher interest rate but do not write him or her off.

If you understand how the bank and for that matter other lending institutions work in approving a bad credit mortgage, you may be able to get a bad credit mortgage loan just as easy as any other good credit borrower can.

The bank wants to know the following facts about you:

1. Do you have any regular consistent employment income. If you have no steady income how can you expect to make your monthly payment. Regular consistent employment income is very important to get a bad credit mortgage approved.

2. Is your income sufficient to pay all the monthly debt repayments such as credit cards, car loan, personal loan, mortgage loan. Bank in the past expected you to use no more than forty percent of your gross income for all your mortgage and other loan payments. Nowadays some banks will go as high as fifty percent of your gross income.

3. The bank may want to understand the reason for your having a bad credit. Was it due to some temporary set back, example you lost your job temporarily, you were sick and cannot work for a while, you have some emergency expenses that put strain on your cash flow. If you have a good reason and the bank sees that you are now back on your feet and can handle your future financial obligations, your chance to get a bad credit mortgage loan is greatly enhanced.

4. The bank may also like to know how you are going to fix your bad credit. One simple way to fix a bad credit is by debt consolidation. Debt consolidation really means getting all your individual credit obligations into one large credit obligation and usually at a much reduced interest rate. The effect is that it is easier to manage your credit obligations with one monthly payment, and very likely your one payment will be less than the sum of all your previous payments as a result of reduced interest rate.

5. Alternatively the bank may consider that you provide a guarantor to guarantee repayment of your mortgage loan, until such time as your bad credit status has turned into a good credit status and you can stand on your own two feet.

You all have heard recently of the crisis with sub-prime mortgage in the United States. Effectively sub-prime mortgage is a mortgage approved for bad credit borrowers. The banks had hoped that real estate market will go up year over year, so that there will be sufficient equity in the property if there is any problem with the bad credit borrowers unable to fulfill their credit obligations. As it turns out, real estate in the States has fallen in value and the bad credit borrowers have no incentive to keep up with their mortgage payments.

If the above scenario looks like it applies to you, you no longer have to worry about your bad credit. You may go to the bank and apply for a bad credit mortgage loan.

Do not be afraid also to consult a licensed mortgage broker. You will be surprised to hear what they can do to help you get a bad credit mortgage.

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