Bad Credit Mortgage Loan – Key Questions to Ask Your Lender

In today’s economy, many people have a damaged credit score after having experienced setbacks during the recently, and arguably still current financial crisis. Lost jobs, foreclosed homes, poor performing 401K’s and the list goes on.On the other hand, because of the poor economy, in many markets there are great deals to be found in terms of new homes and with a low interest rate. Even if you have a poor credit score, it is still possible get a approved for a new mortgage or even a mortgage refinance.Consider applying online with a reputable broker or lender simply to find out what your options are. Many companies have specific programs for people with poor credit. You can read about some great, hand-picked companies on our website. Completing a simple online application can help save you a lot of time by getting an answer from multiple lenders right away.If you find a lender who will work with you, these are a few key questions to ask:

Are there any extra fees you are paying due to your credit score? Some lenders will try to take advantage of you by charging extra fees but this is unnecessary. Ask for a Good Faith Estimate, which is a formal quote and review every line to ensure you are comfortable with all of the fees.

Are you paying down your interest rate by paying additional costs? Some lenders will offer you a lower rate by charging you more up front in the form of fees. Sometimes this is referred to as buying points. This isn’t necessarily a bad thing but you want to make sure you know how your interest rate is being calculated.

What interest rate are you being offered relative to current market rates? You can review current market rates by going to With a poor credit score, it isn’t uncommon to be charged a higher interest rate to account for the additional “credit risk” your lender is taking by lending you money with a poor credit score but it should still be a competitive rate. Consider using an online company or website to get multiple quotes from several reputable lenders to save time and money.

Is there a pre-payment penalty? If so, what are the terms? Though rare in today’s market, some loans include prepayment penalties. It is very important that you avoid this penalty because as your credit score improves over time from prompt and consistent payments, you will want to refinance your loan to secure a lower interest rate.

Ask yourself, “Can I afford this monthly payment long-term?” This is a key question many people fail to ask themselves and is the reason why many people have lost their homes during the current recession. Do not make the mistake of taking on a mortgage obligation you can barely afford; it is much better to be conservative, even if it means living a little smaller. Two, three years from now, you do not know if you will lose your job, face an unfortunate and unexpected medical expense or any number of financial issues. Also be sure to keep an emergency savings fund available with six to 12 months of living expenses in the event an unplanned financial emergency is encountered.

Finally, are you comfortable with the lender and their terms? Do not feel pressured into any financial situation you are not 100% comfortable with. Many lenders will try to apply pressure to make a decision to lock in a “low” interest rate. Keep in mind that rates fluctuate daily and while securing the lowest possible rate is important, ensuring you are comfortable with terms and the monthly payment is the most important. Only move forward when you are ready.It really helps to work with a company that offers a specific bad credit mortgage program. Seek out a referral that you can trust to help save time and money.

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