Mortgage Loans for People with Bad Credit
As most people know, the mortgage industry was turned upside down a few years ago when a combination of bad credit loans and a foreclosure crisis collided to form a nationwide housing crisis. Bad credit lenders took it to far in 2005 and 2006 when they pushed no money down 80-20 mortgage loans for people with bad credit. The zero down home loan required no money-down and most of these first and second mortgage loans carried an adjustable interest rate which became a ticking time bomb.
The mortgage guidelines changed significantly the following year and millions of these homeowners went to refinance their ARM’s as their loans started to adjust, but this time the lenders were not approving their loans. Home refinance loans became more difficult to qualify for as income documentation was now required. So all of these borrowers who were originally been granted stated income home loans were abandoned by their lenders. Then home values tanked in 2007, borrowers began to default on their mortgage and walk from their homes. This was unlike any housing crisis our country has ever seen. It was really easy for people to walk because the borrowers put no money down when they bought their home so nothing was invested. Many of these homeowners already had bad credit so walking away with a foreclosure on their credit report was not the end of the world.
In the past borrowers would simply refinance their first and second mortgage together, but do to a lack of home equity, borrowers no longer had that option. A new phenomenon arose that rewarded borrowers who were delinquent on their mortgage payment with bad credit refinance loans. The banks called them loan modifications and in the beginning the only thing a borrower needed to do to qualify for not pay their mortgage payment. This trend shook the mortgage market and home loans for people with bad credit were now available through a loan modification. Borrowers were able to refinance into a low rate mortgage but rather than call their loan officer, they would call the loss and mitigation department in an effort to get their mortgage restructured. Banks were not equipped to handle the volume of borrowers that stopped paying their home loan and flooded the lenders with the requests for loan workouts. These loan modifcations became the bad credit refinancing alternative. Millions of people lost their home while millions of people received a mortgage loan modification. Unfortunately most these borrowers even defaulted on their new mortgage loan and thousands of banks and mortgage companies went out of business.
Today qualifying for a mortgage loan with bad credit is quite complex. Several government financing programs continue to help people with bad credit refinance, but even those programs are reporting tighter loan guidelines. FHA mortgage loan options have genuinely helped many people with bad credit get a second chance, but not everyone meets the criteria outlined by HUD to qualify for home buying or refinancing. The other bad credit option is the VA mortgage loan. This is a wonderful mortgage, but the borrowers must be an active in the military or a veteran. VA home loans are only an option for a small percentage of the population, so new programs offering loans for people with bad credit are needed now more than ever. For the most part the new trend for first time home buyer loans is higher fico scores and most lenders are requiring full income documentation including tax returns and current pay-stubs for loan approval.
