How to determine bad credit and
why does it matter when it comes to purchasing a home?
According to FICO International and other popular credit bureaus, a bad
credit score is any score below 640. Credit scores above 640 are considered
fair, good or excellent. Once your score is above 640, the chance of being
approved for a loan increases significantly.
How does your credit become poor?
What activities occur that results in bad credit?
Late payments. If you are
late on credit card payments, that likely will have a negative effect to your
credit score. To aid, this you may want to have your bills automatically
deducted from a checking or savings account. This way you will not miss a
payment and there will be no negative ding to your credit score. You can be
confident that you will not miss a payment.
High debt. High debt can
originate from any number of things. Debt is considered high when is over 1/3
of your monthly income. When you are living paycheck to paycheck, it is hard to
keep track of your credit. Your income must be high enough that you are not
worried about debt payments. Furthermore you have enough income that you can
comfortably afford living expenses despite the inclusion of debt.
Defaulted on previous loans.
If you have defaulted on loans in the past, whether they were loans for a car,
healthcare or other situation.
Business failures. It is
common knowledge that most businesses fail within the first couple of years. If
you have ever owned a small business, than you may likely have experience in
ventures that have failed. Owning a business can be stressful and before you
realize it, you have spent most of your savings keeping it going.
Having a low credit score can hinder your ability to qualify for a
traditional loan. This includes any vehicle, business or property loan. As we
discussed from the beginning, credit history is similar to work history. It is
a proven way that lenders, like employers, can take a background look at your
ability to control debt responsibly. Your credit report (i.e. work resume)
describes how you manage debt accounts and whether you have made payments on
time. Of course, just like a resume, a credit report does not take in effect
the details of your ability to borrow. It also does not account for simple
mishaps and unfortunate tragedies that may have affected your credit.
The situations explained above are such examples of unfortunate events.
Many of these situations are at times not your fault and can come to as a
surprise to you. Fortunately, good credit is not the end all, be all in
securing a home loan.
Subprime mortgages can be very useful for people that are looking to
buy a house. Without this type of mortgage finding a loan may be difficult if
you are struggling with any kind of financial difficulties. Many of these
financial situations are out of people’s control and unfortunately this leads
to a failure to qualify for large loans, especially mortgages. Knowing this
fact, it is nice to know that there are other options available like subprime
lending.
Despite the obvious upsides of
Subprime
mortgage Arizona there are negative connotations with these types of loan.
In this article we will discuss and debunk the most common misconceptions about
subprime lending. Consequently we will also examine the reasons why
sub prime loans are actually helpful to buyers.
1.
Subprime loans
are only lent to those that can’t afford them
This is simply not true. There are many different types of lenders
along with various kinds of financial backgrounds. A lot of these situations
weren't simply due to the lack of a person’s income. Unfortunate situations can
occur which are not under the person’s control. Situations like employment
status, defaulting on a high loan or previous mortgage; even such events like
natural disasters. These situations often have nothing to do with whether
buyers can afford to pay off a loan. Homebuyers may likely have the funds to
carry a mortgage but simply had a past that disqualified them for a
bank-sponsored home loan.
2.
All sub prime
mortgage borrowers have bad credit
As mentioned above, there are many different types of loan borrowers.
These borrowers can have many different financial backgrounds and be in
different situations. Not all sub prime lending is the cause of bad credit and
vice versa. Bad credit can also be the result of past hapless circumstances.
Besides bad credit, home buyers likely will have a limited credit history. A
limited credit history does not mean the individual has bad credit, but rather
they do not have enough proof (or
“experience) in the act of repaying a loan. This gives banks a false impression
that limited credit individuals are not financially capable to hold down a
mortgage. People with limited credit history could be just out of college or
school. They could also be people who do not carry a lot of credit cards or
simply new to credit.
3.
Sub prime lending
is the result of housing foreclosures and negative property values
Subprime mortgages are not the direct cause of foreclosures or loss of
property nor are they the cause for negative property values. There are many
other reasons for foreclosures to happen and it is not the result of using sub
prime loans to secure a home.
How are Subprime mortgage Arizona are helpful to borrowers?
1.
Gives buyers a
fair chance to own a home despite unfortunate circumstances
Despite past unsavory situations like loss of unemployment,
sickness, or defaulting on a large loan, it will limit a buyer’s chance of
obtaining a traditional home loan. Fortunately subprime mortgages exist to help
out people that are able to make payments on a mortgage but may not qualify for
a typical loan.
2.
Limited credit
history
As mentioned earlier, limited credit history means that you
don’t have enough proof or “experience” with borrowing credit. You may be on
your first credit card that is still rather new or you may never have touched
credit before. Either way, to a typical financial institution, you are a
high-risk borrower. The only way to alleviate this situation is to wait until
your credit history matures…or you can simply consider applying for a
sub prime mortgage Arizona.
3.
Self-employed or
other alternative income situations
Banks prefer borrowers with a guaranteed paycheck from an employer.
This is reasonable to assume but it guarantees the lender that the borrower
will have money coming in every few weeks. Unfortunately if you do not have a
9-5 job with an expected paycheck, it is more difficult to get approved for a
loan. Individuals that are self-employed, rely on investments or other income
situations need to seek alternative sources of borrowing.
4.
No hassle with
the banks
Why get frustrated with standard banking institutions, when there are
other types of lending available? Instead of bank loans, other borrowers like
yourself, have chosen to deal with private lenders. Private lending offices are
often more flexible and sensitive to alternative financial situations when it
comes to borrowing.
At Level4Funding we can help you get approved for a Subprime mortgage
Arizona. Speak with one of our friendly advisors today!
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Tel: (623) 582-4444 | Fax: (888) 279-6917
www.level4funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027
