Bad Credit Mortgage Arizona: Why Credit Matters

Sub Prime Mortgages Arizona: Using an Adjustable Rate Mortgage to your Advantage
January 20, 2015
Bad Credit Home Loans are More Common Then You Think
January 26, 2015

Bad Credit Mortgage Arizona: Why Credit Matters

How to determine bad credit and why does it matter when it comes to purchasing a home?

According to FICO International and other popular credit bureaus, a bad credit score is any score below 640. Credit scores above 640 are considered fair, good or excellent. Once your score is above 640, the chance of being approved for a loan increases significantly.

How does your credit become poor? What activities occur that results in bad credit?

Late payments. If you are late on credit card payments, that likely will have a negative effect to your credit score. To aid, this you may want to have your bills automatically deducted from a checking or savings account. This way you will not miss a payment and there will be no negative ding to your credit score. You can be confident that you will not miss a payment.

High debt. High debt can originate from any number of things. Debt is considered high when is over 1/3 of your monthly income. When you are living paycheck to paycheck, it is hard to keep track of your credit. Your income must be high enough that you are not worried about debt payments. Furthermore you have enough income that you can comfortably afford living expenses despite the inclusion of debt.
Defaulted on previous loans. If you have defaulted on loans in the past, whether they were loans for a car, healthcare or other situation.
Business failures. It is common knowledge that most businesses fail within the first couple of years. If you have ever owned a small business, than you may likely have experience in ventures that have failed. Owning a business can be stressful and before you realize it, you have spent most of your savings keeping it going.
Having a low credit score can hinder your ability to qualify for a traditional loan. This includes any vehicle, business or property loan. As we discussed from the beginning, credit history is similar to work history. It is a proven way that lenders, like employers, can take a background look at your ability to control debt responsibly. Your credit report (i.e. work resume) describes how you manage debt accounts and whether you have made payments on time. Of course, just like a resume, a credit report does not take in effect the details of your ability to borrow. It also does not account for simple mishaps and unfortunate tragedies that may have affected your credit. 
The situations explained above are such examples of unfortunate events. Many of these situations are at times not your fault and can come to as a surprise to you. Fortunately, good credit is not the end all, be all in securing a home loan.

 Common Misconceptions of Subprime mortgage Arizona

Subprime mortgages can be very useful for people that are looking to buy a house. Without this type of mortgage finding a loan may be difficult if you are struggling with any kind of financial difficulties. Many of these financial situations are out of people’s control and unfortunately this leads to a failure to qualify for large loans, especially mortgages. Knowing this fact, it is nice to know that there are other options available like subprime lending.
Despite the obvious upsides of Subprime mortgage Arizona there are negative connotations with these types of loan. In this article we will discuss and debunk the most common misconceptions about subprime lending. Consequently we will also examine the reasons why sub prime loans are actually helpful to buyers.
1.       Subprime loans are only lent to those that can’t afford them
This is simply not true. There are many different types of lenders along with various kinds of financial backgrounds. A lot of these situations weren’t simply due to the lack of a person’s income. Unfortunate situations can occur which are not under the person’s control. Situations like employment status, defaulting on a high loan or previous mortgage; even such events like natural disasters. These situations often have nothing to do with whether buyers can afford to pay off a loan. Homebuyers may likely have the funds to carry a mortgage but simply had a past that disqualified them for a bank-sponsored home loan.

2.       All sub prime mortgage borrowers have bad credit

As mentioned above, there are many different types of loan borrowers. These borrowers can have many different financial backgrounds and be in different situations. Not all sub prime lending is the cause of bad credit and vice versa. Bad credit can also be the result of past hapless circumstances. Besides bad credit, home buyers likely will have a limited credit history. A limited credit history does not mean the individual has bad credit, but rather they do not have enough proof  (or “experience) in the act of repaying a loan. This gives banks a false impression that limited credit individuals are not financially capable to hold down a mortgage. People with limited credit history could be just out of college or school. They could also be people who do not carry a lot of credit cards or simply new to credit.

3.       Sub prime lending is the result of housing foreclosures and negative property values

Subprime mortgages are not the direct cause of foreclosures or loss of property nor are they the cause for negative property values. There are many other reasons for foreclosures to happen and it is not the result of using sub prime loans to secure a home.

How are Subprime mortgage Arizona are helpful to borrowers?

1.       Gives buyers a fair chance to own a home despite unfortunate circumstances
Despite past unsavory situations like loss of unemployment, sickness, or defaulting on a large loan, it will limit a buyer’s chance of obtaining a traditional home loan. Fortunately subprime mortgages exist to help out people that are able to make payments on a mortgage but may not qualify for a typical loan.
2.       Limited credit history
As mentioned earlier, limited credit history means that you don’t have enough proof or “experience” with borrowing credit. You may be on your first credit card that is still rather new or you may never have touched credit before. Either way, to a typical financial institution, you are a high-risk borrower. The only way to alleviate this situation is to wait until your credit history matures…or you can simply consider applying for a sub prime mortgage Arizona.
3.       Self-employed or other alternative income situations
Banks prefer borrowers with a guaranteed paycheck from an employer. This is reasonable to assume but it guarantees the lender that the borrower will have money coming in every few weeks. Unfortunately if you do not have a 9-5 job with an expected paycheck, it is more difficult to get approved for a loan. Individuals that are self-employed, rely on investments or other income situations need to seek alternative sources of borrowing. 
4.       No hassle with the banks
Why get frustrated with standard banking institutions, when there are other types of lending available? Instead of bank loans, other borrowers like yourself, have chosen to deal with private lenders. Private lending offices are often more flexible and sensitive to alternative financial situations when it comes to borrowing.
At Level4Funding we can help you get approved for a Subprime mortgage Arizona. Speak with one of our friendly advisors today!
Dennis Dahlberg
Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

Comments are closed.