Damaged credit is no longer the end of the world for homeowners and homebuyers.  In fact, the majority of Americans have some adverse entry on their credit report of some sort, usually late payments or minor collections.

Negative and adverse credit entries do not stay on a person’s credit report forever.  Normal consumer debt information such as late payments, past delinquencies, collection accounts and general credit information may remain on a credit report for only seven years.

There are non-conforming loan programs available that are more lenient on credit.  In fact, some of these programs will refinance a borrower out of a current foreclosure or bankruptcy.   Non-conforming loans are sold to the secondary mortgage market, but through private conduits, willing to accept high-risk borrowers-at a price.

Although most mortgages’ for bad credit borrowers are 30-year loans.  The astute borrower should never consider them as long-term loans.  They are only 30-year loans because the monthly payments are lower than those of a short-term mortgage.

Remember that as you continue to make timely payments on your new mortgage and other accounts.  Your credit grade improves every year.  Someone who may be considered D-credit today may be considered C-credit next year.  That can mean a $100-$300 difference on the average monthly payment.

By refinancing as your credit grade improves, you can lower your interest rate and monthly payments.  When your credit grade improves to A- or B+, you may qualify for the excellent interest rates offered by conforming conventional loans.

The Loan Process

Whether you walk into a bank, apply for your loan on the Internet, or a loan officer meets you in your home, all lenders require an actual application. The lender will want to verify certain information about the borrowers and will require additional information on the property e.g. an appraisal.

Borrower information will include verification of income and employment, assets, and credit history of the applicants.  Some of this information will be provided by you, as part of your application process, example, you will be requested to provide copies of tax returns for 2 years, current pay stubs, and bank statements for asset verification.

If for whatever reason you cannot provide income, employment or assets on a convention mortgage you maybe be able to qualify for a "No Income Verification" Loan (NIV).  This is just another alternative in financing.  Back to financing 101:

During the processing your credit, assets, income and other determinants are checked and compiled.  At the end, your loan is either approved with conditions or approved without conditions or declined.

When all conditions are met, your loan documents are drawn up and forwarded to the place of closing.

Do not make any adverse changes to your financial "picture" during this delicate time between approval and when funds are dispersed.  Believing the "approval'' is the final stage or that the lender won't find out about the change in debt or income or other factors can lead to real headaches.

Often a lender obtains another credit report and may call your employer one last time before funding the loan.

The Interest Rate Lock Process

Sometime before your loan documents are drafted, you will "lock in" a interest rate for your loan with the mortgage source.  The purpose of the lock is to allow you a loan at the "locked-in'' rate if the loan closes before the lock period expires, even if rates are higher at the time of funding. 

Take into consideration the shorter the time period between the actual lock and the closing the cheaper the interest rate or points.  It may cost more to get an extended lock rate. 

Bankers versus Brokers

Some mortgage sources are direct lenders such as banks and mortgage bankers with retail establishments.  Usually banks or mortgage banks will be competitive in one or several products, and will encourage their loan officers to sell these products to the consumer.

Direct lenders are captive to their own products.  They will not provide unbiased advice or selection, since by doing so they will possibly risk losing your loan to the company whose product truly provides you the most value.

Brokers on the other hand can sell a variety of products, from multiple sources, and can be objective in their recommendations.  Brokers represent a number of lenders and offer these lender's products through a wholesale arrangement.

If your loan is declined for whatever reason, you will need to begin the process again with another source. With a mortgage broker, you have another chance if one lender doesn't approve your loan.  Which one should you use?  Depends on your circumstances.

Understanding the loan process can minimize the likelihood of frustration during the loan transaction.  Remember to work with a source that has established itself as a company with integrity that cares for the borrower throughout the experience.

If you’d like to know more about the purchasing process we have written an informational handbook that explains the entire process from A to Z.  You'll find answers to basic and difficult questions.  The book is FREE and NO OBLIGATION, whatsoever.

Obtain Your FREE Copy of the Buyer's Informational Handbook

This is not intended as a solicitation of another broker's client.