As soon as your bankruptcy has been discharged, you can apply for a home equity loan. However, expect to pay high interest rates for financing with such a low credit score. Waiting longer and practicing good credit habits will qualify you for the “A” list and better rates.
Two Years For The Best Rates
To get the best rates on a home equity loan, it takes at least two years of good credit choices to qualify for “A” loans. While waiting a couple of years can be difficult, it can save you thousands in interest costs.
You can begin rebuilding your credit by opening a credit card, using it, but not maxing out the account. Building up a cash reserve can also improve your credit score. Conventional lenders like to see at least three or more months of income saved.
Subprime Lenders An Early Possibility
You can qualify early for a home equity loan with a subprime lender. Subprime lenders deal with high risk loans, particularly those with poor credit. The longer you wait after your bankruptcy, even a few months, the better your rates will be with these financing companies.
As with any type of financing company, you should research subprime lenders before signing a contract. Rates can vary widely between companies. Request an APR quote on home equity loans to find the most reasonable rates and fees. Online sites make gathering these quotes a snap.
Home Equity Loan Options
Home equity loans come in a variety of financing packages, each with different rates and fees. A second mortgage offers the lowest rate, but high upfront costs. A line of credit can be opened with no or little cost, but rates are higher. Refinancing your entire mortgage to cash out your equity is also an option.
While a bankruptcy will stay on your credit report for seven to ten years, you can enjoy good credit in as little as two years. Each family has their own unique budget concerns, so there is no one best time to take out a home equity loan. Weigh your options carefully, and research lenders for the best deal.
Your credit score is derived from your credit history. However, when it comes to lending decisions, the two are not always interlinked.
Usually, the first thing a lender looks at in a credit report is your credit score. They will examine your credit report, including scores, from all three of the major credit reporting bureaus. Lenders will usually approve or deny you based on the middle of these three scores.
What happens if you're filing a joint application? In that case, lenders will look at each middle score for you and your co-applicant. Then, they take the lower of the two middle scores to base a lending decision against.
If your score is high enough, mortgage lenders will take a cursory glance at the rest of your report. If there aren't any major delinquencies, such as a bankruptcy, foreclosure, or judgment, then the chances of approval are good. A high-enough score is usually above 620. When you get into the 700-score range, you'll get even more preferential treatment.
But what happens if your score isn't high enough? At this point, a mortgage lender will closely examine each of your open accounts to establish an overall credit pattern. For example, if you had been late on your credit card payments 2 years ago, but have since paid them perfectly, it is regarded as favorable. If you have had perfect credit in the past but have been delinquent on your payments recently, you will need a perfect explanation to overcome that hurdle.
To take advantage of this behavior, you'll need some patience and diligence. Lenders will usually weigh the past 12 months of your credit the most. If they see 12 consecutive months of perfect payments for all your accounts, they will tend to overlook some of your previous delinquencies. They might also overlook your middle credit score if it's lower than 620. Of all the accounts they examine, they will examine your mortgage payment history with a microscope. When it comes to your mortgage payment history, they look at the last 24-36 months, not just the last 12.
Of course, if you have something major like a bankruptcy or foreclosure, you have more explaining to do.
Obtain a copy of your credit report from all three major credit bureaus. Make sure it contains your scores as well. Look over each of your accounts. Even if you know you've been late on a payment within the past year, it's not always reported that way on your credit report.
If all of your accounts have perfect payment history over the last 12 consecutive months, you're in very good shape. If you are showing as delinquent on any account, start your 12 month count from that point. For example, if you pull your credit report in July, and your last delinquent payment was in April, then you will start counting 12 months from May (assuming your May payment brought the account current). By the following May, if you've paid everything on time, you'll have a much better shot at approval.
If you need to obtain a mortgage now, you can usually secure an approval from a subprime lender. Sometimes, they are your only option. If you find yourself in this situation, you must resolve to pay every single account perfectly. After 12 months of doing so, you should be able to refinance with a conventional lender at a better interest rate. Some subprime lenders have sister companies that will make refinancing easier. These sister companies will usually have more lenient guidelines for current customers of the subprime lender. When applying to a subprime mortgage company, see if they have affiliated companies that offer this service.
Of course, the best way to secure a good mortgage without having to do the 12-month dance is to have the highest possible credit score. Again, make sure you obtain a copy of your credit reports with scores. Then, find a good book on how to raise your credit score and follow the guidelines. You might not have to wait 12 months after all.
One of the best ways to repair your bad credit is by refinancing your home mortgage. The difficult part is finding a lender for your home mortgage since your credit history is not good. Forget about the banks and other financial institutions, they will not probably accept your home mortgage. So how do we find a lender that does?
Well, the answer to that lies in subprime lenders. Most subprime lenders are willing to offer loans to people with bad credit history. However do note, it does vary from one lender to another and you may have to visit a few before finding one that does.
You can find subprime lenders on the internet, through your friends or the local business directory. Some lenders have acquaintances with other lenders and they can do a referral on your behalf.
Since subprime lenders are taking a high risk by refinancing your home mortgage, you may need to find a few before you find one that offers you the loan. Subprime lenders also have their own approval process not much different from banks and financial institutions. Your credit history, assets, gross income level, current debts etc are all taken into consideration when determining whether you qualified for the loan except that they have a higher threshold compared to banks and financial institutions.
They usually charge higher interest rates due to the higher risk they are taking, so even though you may pay more, in my opinion, the benefits of recovering from your bad credit outweighs the disadvantage of higher interest rates.
Do take note, this is a temporary solution as you still need your pay your monthly refinance on time. If not, you will be in a worse position. I recommend getting a refinance home mortgage loan more than what you currently owe so that you have some money to clear off your credit card debts, bills etc. That also helps in your credit repair efforts.
Ultimately, this method of credit repair still require you to manage your finances better. I would recommend to setup the refinance payments to automatically deduct from your salary every month. In this way, part of your salary goes towards repaying the refinance loan before you even have a chance to take out the money. Most banks can set it up for you free or you can use the internet banking system to do it.
Remember, the only way to repair your bad credit is to have good discipline with your finances.
Mortgages for those with adverse credit have advantages that conventional mortgages don’t. The prime advantage is that they are easier to qualify for, even with a bad credit history. Sub-prime mortgages also allow you to build wealth with your home purchase. And they have fewer hurdles, such as not requiring PMI.
Start Building Wealth
Bad credit mortgages allow you to start building equity wealth even if you have a bankruptcy or foreclosure in your past. With rates only a couple of points above conventional rates, you can get into a home with no or little down. For about the cost of a rent payment, you can enjoy tax deductions and home ownership.
Without waiting for your credit score to improve, you can buy a home at today’s prices. Even though no one knows for certain what prices will be in the next couple of years, more than likely they will be higher. You can see that appreciation by buying a home now.
Forgo Private Mortgage Insurance And Other Hurdles
Unlike conventional loans, you don’t have to carry private mortgage insurance with a sub-prime loan. So even with a down payment of less than 20%, you don’t have to worry about premium costs.
Sup-prime lenders are also more flexible with their requirements. Your cash assets, income, and credit scores can be less than favorable, but you can still get a mortgage. You can also choose more flexible loan terms of interest-only, jumbo, or adjustable rates.
Finding An Adverse Credit Mortgage
With more and more financing companies offering sub-prime lending, it’s easier than ever to find an adverse credit mortgage. A quick search online will yield hundreds of opportunities. Sifting through those results can produce some very favorable financing offers.
If you are overwhelmed with the choices, start with a mortgage broker. They sort through the plans to present you with the best selections. In some cases they also offer special deals, not found elsewhere.
Don’t worry about getting approved or not. Focus on getting the best rates and terms. Ask for loan quotes that include closing cost estimates to make comparisons. Also be willing to negotiate more favorable terms, especially to lower caps or fees.
You say you know where your money goes and you don’t need it all written down to keep up with it? I issue you this challenge. Keep track of every penny you spend for one month and I do mean every penny.
You will be shocked at what the itty-bitty expenses add up to. Take the total you spent on just one unnecessary item for the month, multiply it by 12 for months in a year and multiply the result by 5 to represent 5 years.
That is how much you could have saved AND drawn interest on in just five years. That, my friend, is the very reason all of us need a budget.
If we can get control of the small expenses that really don’t matter to the overall scheme of our lives, we can enjoy financial success.
The little things really do count. Cutting what you spend on lunch from five dollars a day to three dollars a day on every work day in a five day work week saves $10 a week… $40 a month… $480 a year… $2400 in five years….plus interest.
See what I mean… it really IS the little things and you still eat lunch everyday AND that was only one place to save money in your daily living without doing without one thing you really need. There are a lot of places to cut expenses if you look for them.
Set some specific long term and short term goals. There are no wrong answers here. If it’s important to you, then it’s important period.
If you want to be able to make a down payment on a house, start a college fund for your kids, buy a sports car, take a vacation to Aruba… anything… then that is your goal and your reason to get a handle on your financial situation now.
Answer these questions truthfully:
1.) Does your spouse or partner complain that you spend too much money?
2.) Are you surprised each month when your credit card bill arrives at how much more you charged than you thought you had?
3.) Do you have more shoes and clothes in your closet than you could ever possibly wear?
4.) Do you own every new gadget before it has time to collect dust on a retailer’s shelf?
5.) Do you buy things you didn’t know you wanted until you saw them on display in a store?
If you answered “yes” to any two of the above questions, you are an impulse spender and indulge yourself in retail therapy.
This is not a good thing. It will prevent you from saving for the important things like a house, a new car, a vacation or retirement. You must set some financial goals and resist spending money on items that really don’t matter in the long run.
Impulse spending will not only put a strain on your finances but your relationships, as well. To overcome the problem, the first thing to do is learn to separate your needs from your wants.
Advertisers blitz us hawking their products at us 24/7. The trick is to give yourself a cooling-off period before you buy anything that you have not planned for.
When you go shopping, make a list and take only enough cash to pay for what you have planned to buy. Leave your credit cards at home.
If you see something you think you really need, give yourself two weeks to decide if it is really something you need or something you can easily do without. By following this simple solution, you will mend your financial fences and your relationships.
