A while back it was almost impossible to get approved for mortgage loans with bad credit. This is not the case any more. Bad credit mortgages, or subprime mortgages, are in great supply on the internet.

A bad credit mortgage company relies on a credit score provided by one or all of the credit agencies to determining where a borrower sits on the line between high-risk and low-risk. Equifax, Experian, and Trans Union keep track of each persons credit history and give individuals a score derived by several factors. These factors include not only payment histories of each credit card and loan but also how many inquiries have been made to view the individuals report.

In the past mortgage companies would not touch someone with a score below 620. Today that number has dropped to 500 which is pretty bad. The fact that an individual is a higher risk gives the mortgage lender incentive to charge higher interest rates and demand that the borrower pay PMI, a form of insurance that guarantees the lender won’t lose out if the borrower defaults. Higher interest rates and payment insurance make bad credit mortgages a profitable venture.

Companies are doing so well in fact that they often offer incentives such as instant pre-qualification, easy application forms and instant approval via the internet. They are everywhere online. Websites can automate many of the processes necessary to the approval process which makes it a hands off job for the lenders.

Companies that offer bad credit mortgage loans definitely exploit the automation capabilities of the internet and some use unscrupulous tactics to reel in those would be borrowers who are either on the fence or just shopping around. Fear tactics such as a great deal that will only last for the next 24 hours (of course the same deal is there a week later).

If you are looking for a mortgage online, shop around, don’t be swayed by the scare tactics and read the fine print. It is also very important that you know what your credit score is. It makes sense to first put in some effort to do whatever possible to bring your credit score up as much as you can before applying. Bad credit mortgage loans are not all that hard to get but be forewarned, many of these bad credit mortgage lenders will try to squeeze whatever they can out of you with the justification that you are a higher risk to them.

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You’ve got to admit, the term bad credit mortgages just sounds wrong. The fact remains they do exist and the truth is, they can be quite easy to get. There are cases when a mortgage is a good choice for someone with poor credit and there are cases when it not a good idea at all.

If your intent is to build equity as a first time home owner and your credit is not up to snuff, you would be much better off taking care of your bad credit first. Bad credit mortgages can be very expensive and after years of payments you may find that the equity you have accumulated is not what you had hoped. This is because you have been paying the gigantic interest that is associated with these types of mortgages.

On the other hand, if you have accumulated a huge amount of debt but have already built up a significant amount of home equity, a second mortgage could be taken out in order to pay off several high interest debts. This usage of a bad credit mortgage makes more sense.

In either case, refinancing down the road is always an option. Of course you should focus on repairing your bad credit. This can be done contacting the credit reporting agencies and getting a copy of your personal record from each. You can then review them line by line and begin the process of getting rid of false entries or eradicating the negative marks. This can be a daunting and painfully long process but with a strong resolve and perserverance it can and should be done.

Keep in mind that the average mortgage will be with you for 30 years and as such you should have some sort of master plan. Accumulating your own equity is always a better choice than donating to someone elses which is what renting is. Even with a high interest mortgage you will still be accumulating some equity and if your are careful with your finances, pay on time, and take the steps necessary to bring your credit score up, you will find yourself in a better position for sure.

It all depends on your personal situation. Bad credit mortgages, though more expensive, will still earn equity and you can always seek out refinancing. However, if you can’t afford the down payment it may be better to keep on renting for a while longer and focus on getting your credit together first.

Tags: bad credit mortgage, bad credit mortgages, first time home owner, high interest debts, home equity, second mortgage