If you are applying for a first time mortgage, bad credit could haunt you so you need to pay close attention to your credit score WAY in advance of applying for your loan.
Remember all the pizzas you ordered in college at 3:00am on you credit card but forgot about paying?
If this is your first time mortgage - bad credit may be an issue however getting a loan is not impossible - you'll just be paying more... usually about 30% more than someone with good credit. (over 700 credit score).
How long will bad credit stay on my account?
Actions first time mortgage - bad credit borrowers can take
Hindsight is really 20-20, especially when your credit is at stake. Most first time buyers start thinking about their credit score right around the time they apply for that first time mortgage. BIG MISTAKE!!
Many don't have a clue what their actual credit score will be until they get the bad from the lender on their first meeting. Prepare for a shock!
How Long Will Bad Credit Stay On My Credit Report?
The bad news is bad credit and missed payments will haunt your credit report for about 7 years. Were talking missed credit card payments especially!
The biggest credit killer first time mortgage - bad credit borrowers face are late payments on credit card or auto loans or student loans.
Having 30-60-90 day late payments on your credit report will knock your score down by about 20 points per occurance.
How To Avoid Bad Credit
Do what ever it takes to not miss any revolving credit payments !
This might mean borrowing short term funds from a quick cash loan provider.
Sure the fee is high - about 20 per every 100 borrowed - but it's the least cost alternative in the long run.
The 40-60 dollars you spend to borrow a couple hundred dollars is MUCH cheaper than missing a credit card payment.
The increase in interest payments you'll experience as a result of missing a payment will cost you tens of thousands of dollars over the life of the mortgage loan .
So planning and monitoring your credit is the key especially if your looking for a first time mortgage. Bad credit is the biggest cash killer but with your careful and attentive planning is totally PREVENTABLE.
Delay Home Purchase - Credit Scores Get Better Over Time
Bad credit stays on your credit report for about seven years - see How long does bad credit stay on my credit report?
If you can go seven years with no 30-60-90 day lates on your credit cards or auto payments your credit score will surely increase. After 7 years you will qualify for a lower interest rate. This is the long way for sure.
Increased Income VS OLD Bad Credit
Maybe your in a situation where cash flow and income has increased due to a job promotion. Maybe your spouse is now working and there are two incomes rather than one.
Despite your increased earnings, any late payments ( 30 days or more) you had in the past will definitely hurt your ability to get the BEST interest rate NOW. It's haunting you!
How to lower your mortgage payment
First time mortgage - bad credit customers can do 3 things to get lower payments :
1) Get a lower the interest rate.
2) Increase your down payment.
3) Look for a deal.
Getting a lower interest rate is highly unlikely as underwriters are held to strict guidelines. They'll simply assess your credit score and determine your interest rate based on that 3 digit FICO score.
If you have a lot of cash to put down great, however...the majority of first time mortgage - bad credit borrowers typically don't have a lot of cash for a down payment. So...
Why Not Look For A Deal?
The lower the amount financed the the lower your monthly payments plain and simple.
With the sharp increase in foreclosures there are many properties on the market and available at discounts.
Look for deals in your area.
Don't know how to search listings in your area? Start Here: foreclosures by ZIP
First time mortgage - bad credit borrowers can get all the cost detail on homes in your area that are in default, full blown foreclosure as well as bank owned properties here - www.foreclosure.com
Remember,
banks don't want to hold properties - they consider any real estate property a "non-performing asset". They would rather sell them to you at a discount and get them off their balance sheets as a liability.
**Why not take an afternoon and drive by properties that you find under foreclosure, you'll be amazed how normal they look in most cases.**
Adjustable Rate Mortgage - Lower Interest Rate
Adjustable Rate Mortgages are a possible solution to first time mortgage - bad credit customers that need a way to lower their initial payment.
Your initial interest rate will be lower than a 30 year fixed but only for 1-3-5 or 7 years.
These should only be used if you are very sure that cash flow is not a problem at the time the loan becomes due. The sharp increase in interest rate that could happen at the end of the 1-3-5-7 year term can be a jolt to your wallet. Know what your getting into.
No Cash But Have a 401K?
If you are working and have a 401k that has accumulated significantly you can probably borrow against it. If you are short of cash for a down payment or closing costs, you may want to consider this option. Typically you can borrow an amount up to 1/2 of your accumulated amount in your 401K.
Start repairing your credit NOW
There are many actions you can take to begin repairing your credit or at least prevent more credit damage.
see: credit tips