Working with a broker means that you can often get approved for loans that you might not otherwise be able to get from local banks. Most brokers work with as many as over a hundred mortgage banks and lenders, and have access to loan programs from mortgage lenders that are not available to consumers because most of they non-prime banks do not have retail branchs. This means that they can most likely get you any loan program that is available on the market, even loan programs for people with less than perfect credit history.
Sometimes, all it takes is a little creative thinking for a loan to work. A good broker knows that not all people fit into a cookie cutter mold and that sometimes, you have to think outside of the box.
Most local banks will not deal with consumers with below average credit. This is one of many reasons that working with a mortgage broker can help you. Mortgage brokers have programs for below with excellent credit, less than perfect credit and downright bad credit. Not only do they have loans for all different credit types but they also have loans for all different income types. They can mix and match these types of loans together too. An example is if you were a self-employed individual and it was hard to document your income and your credit was below average, a mortgage broker may find the loan that suits you best is a sub-prime loan that will allow you to use bank statements as income documentation instead of W2's, tax returns and pay-stubs. Therefore, there are many choices available to consumers with less than perfect credit.
If you have paid your mortgage on time for a minimum of 1 year, you may qualify for an FHA refinance loan. An FHA loan is a government insured loan. There are loan limits for FHA loans so be sure to consult with your mortgage professional to see if you are eligible for FHA financing.
Believe it or not, there are even programs available for people who have recently had a bankruptcy! However, there are always limitations to such loan programs. For instance, the banks may limit the maximum loan-to-value the homeowner can borrow. Applicants of these type of sub-prime loans should expect to pay a higher interest rate than those with better qualification.
Use your new mortgage to build a better credit score! It's not easy, but making every mortgage payments on time for 24-36 months can help build higher credit scores. For this reason, many people will initially take a 2-year ARM or 3-year ARM, build a string payment history (and higher scores), then refinance into a lower, fixed rate mortgage. Managing credit properly requires persistence but allows you to save thousands of dollars in the long run.
Does your credit report contain errors? If so it could result in you over-paying on your next mortgage. Correcting mistaken accounts can take time so the process should be started as soon as you recognize the mistakes. Common mistakes are duplicate accounts, old accounts that have not been updated, or accounts that are marked "open" when in fact they have been paid and closed.
Blemished credit is a temporary issue. Using an action plan to reposition home equity to manage debt and increase your liquidity is key to getting you closer to becoming financially free.
Homeowners with less than perfect credit history should expect to pay a slightly higher interest rate than those with good credit scores. Banks charge higher interest rates to justify the higher risks of potential payment default.