One of the first few steps that any bank or a money lender takes on receiving your request or application for a mortgage is to check your financial standing. More than often, it is the people who have a good history of paying their bills on time, who do not have loans in their name or if they do are quick to clear it, and more importantly have a steady source of income- these are the sorts who get are one among the first to get a mortgage loan. But where does that leave the people who may be having more than one loan to repay, and whose credit histories are not very sound?
Whenever a bank or a money lender gets your application, one among the first things they do next is to turn across the information you give to a credit reference agency which will dig up the necessary clues in your financial past about your standing.
A person who falls into the bracket of having a bad credit would either be a person who has an unconventional source of income (that is, is not able to show proof of being employed somewhere but still gets a source of income), has a distant or recent past of a bad history (which means that bills have gone unpaid, loans have been taken and the repayment has not begun). One of the best ways for an agency to get the needed information is through the electoral roll which is a public information system. Secondly, banks where you have an account or other finance companies you may have approached come next on the list of people to meet. Whatever findings they get about your spending habits and financial status is then passed on to the money lender or bank that you had initially approached.
As far as having a bad credit and still applying for a mortgage is concerned, there is mixed news. Applying for a mortgage loan with a bad credit automatically means that after sizing up your financial status, you will be charged a higher interest in contrast to others. The contract drawn up may also vary in terms of method of payment, duration of payment and frequency of payment. On the other hand, a lot of money lenders especially have now realized that a lot of the people, who approach them for mortgage loans, would have at one time or the other defaulted on their payments. Which is why they are not averse to giving loans to such candidates nowadays as opposed to earlier? Moreover, they have also realized that they walk away with higher interest rates as opposed to a normal deal in such cases.
However, although getting a mortgage loan may not be that hard, there is another catch. It is important not to go to a money lender or a bank who has already rejected you at one point of time. Money lenders often have a very tight knit circle and keep close contacts which means that they also share the private data of customers who approach them. Chances are that if you have been rejected by one lender, that you will also be rejected by others. Secondly, often when you give money lenders a call to find out some casual information, they are very likely to run checks on you while still talking with you on the phone. This information too can be passed around from one person to another. The safest way to get a lender who will not reject you but who would be willing to give you a mortgage is by approaching a broker who would have his own contacts and will be able to guide you better.
Taking a bad credit re-mortgage is also not that hard to get. A re-mortgage simply means that you wish to take another mortgage on your home maybe because you wish to clear the first or because you need some immediate cash. Some points looked at by brokers and other money lenders are-
- Details of the existing mortgage.
- What is the source of income and its regularity?
- Any other debts that are being currently paid off.
- What are the monthly expenses of the household?
- Whether there is any record of bankruptcy.
- Lastly, if there have been any arrears in paying the first mortgage.
If you feel the need for a second mortgage, it would need to be taken against the equity (value) on one’s home. The value of your home would go up providing you have stayed in it for some time. Taking a second mortgage works well for people who wish to pay some sudden debt or the like, or who wish to reduce their monthly payments. It helps to get a firmer hand on your finances. Also in a way getting a re-mortgage would also help to some extent in improving your credit rating because it would show that you are clearing off your debts.
After getting the information needed, brokers give their clients a quote. This has the needed information such as details of monthly payments, fixed or variable interest rates, any down payment that needs to be given, the duration of the second mortgage and frequency of payment. It is important to remember that you should be in a financial position to repay the mortgage loan because on signing the contract, a money lender has the right to seize the property if the payment terms have not been met. After seizing he then has the right to sell the property and take back whatever money he had lent in the first place along with the accumulated interest.
It is important to remember that the terms for a re-mortgage would be a lot more stricter in nature, which means that early repayment fees, having a 5- 10 % equity on the house, and also paying more interest ; are very likely. It is important to think carefully about whether you really need a second mortgage with an existing bad credit history or not.