Just because you have a negative credit history doesn’t mean that you need to settle for a second-rate mortgage lender. Even home buyers with poor credit have options for securing reasonable deals from reputable mortgage lenders.
Before you begin the process of searching for a home, it’s a good idea to research your mortgage lender options and understand the budget you’ll be able to work with and the general process for getting financing. While you’re searching for a reputable lender, you’ll want to educate yourself about some of the most common tricks and scams posed by less reputable companies as well as signs of a good lender.
Lenders and Brokers
Before you begin searching for home financing, it’s helpful to understand some of the vocabulary in the industry. A lender is a financial institution, such as a bank, that makes a loan. The lender profits by charging interest on the loan so that the amount it receives back is higher than what it initially paid.
By contrast, a mortgage broker is not a financial institution and does not lend you money. Instead, the broker acts as a go-between for you and your lender. Mortgage brokers will usually have business relationships with a number of lenders. The broker will profit by charging a fee or commission. Because brokers are well-connected in the industry, they often are able to secure better deals for their clients.
Many changes in the financial sector over the past few years have disrupted the mortgage process. The internet makes it easier for consumers to contact lenders directly about financing, and some lenders are choosing not to work with brokers. Other lenders still work exclusively through mortgage brokers and will not work directly with consumers. This is why it’s important to do your research before settling on one option or the other.
The Good, Bad and Ugly of Mortgage Lenders
Best practices for home financing are laid out by both the FHA and HUD. However, lenders and brokers do not necessarily have to follow these guidelines. There are an unfortunate number of scams and potentially shady practices targeting home-buyers, especially those with poor credit who may believe that their options are limited.
There are several warning signs you can look out for that might signal trouble on the horizon when shopping for a mortgage:
- Any lender who claims to be your only chance at getting financing.
- Any lender or broker who offers paperwork that seems incomplete or has blank pages.
- Any lender who relies on high-pressure sales tactics to force you into making a decision quickly.
- Any lender or broker who tries to convince you that you have only one option and will not discuss your other options with you.
These are not always signs of a scam or dishonesty, but they can be red flags to watch out for. Even as a borrower with bad credit, you still have rights and options. You should never feel locked in to a single option or unable to shop around before committing to a decision.
Although the paperwork involved in home financing can be tedious, it’s important to review each page of the agreement carefully. If the closing terms don’t match what you agreed to previously, do not sign the paperwork. If anything feels strange or suspicious about the agreement, back out and consult an expert for a second opinion. You do not want to be stuck dealing with an unscrupulous lender when there are many better alternatives available. The best mortgage lenders will be up-front with you, happy to answer your questions and able to explain why things are being handled in the way they are.
Considerations for Reverse Mortgage Lenders
Not all people looking to work with a mortgage company are in the process of buying a home. You may instead be a homeowner looking to turn some of your equity into cash. In this case, a reverse mortgage could be a solution. However, it still pays to do your research before settling on a lender for this purpose.
Most reverse mortgage lenders are no longer operating out of the big banks. Instead, smaller and more specialized lenders have risen to take over for these products.
Some reverse mortgages are available to older homeowners aged 62 or above. These homeowners have the best opportunities for converting home equity into cash without needing to make monthly payments right away. Other financing options including a second mortgage are available to different types of homeowners who may be equity-rich but cash poor. The best way to understand your options may be to speak with a financial expert you trust such as a mortgage broker you’ve had good experiences with in the past or even your personal accountant.
How to Choose the Right Lender
The best mortgage lenders are those that offer good terms and follow the industry’s best practices. In order to improve your odds of getting a mortage from a reputable company, there are a few steps you can take:
- Take steps to improve your credit before applying.
- Research the available lenders and brokers.
- Compare the rates for similar mortgages among several lenders.
- Get preapproval. You don’t have to get your loan from the lender who preapproves you, but it can help you understand your budget and boost your chances of getting another lender to work with you.
Once you’re ready to settle on a lender, be sure to read the fine print of the offer and ask questions until you are satisfied with the terms of what you’re getting. If you need help navigating your mortgage options, we can help. Contact us today for more information about how we can help you improve your chances of getting good rates on your mortgage regardless of your credit situation.