If you take up a second mortgage when you have a bad credit this can actually result in improved credit scores. It is usually not easy to be qualified for a second mortgage when you have bad credit. Nevertheless, it is not impossible, it can be done. You need to make a strong application by trying to improve your credit scores as much as possible, after which you can shop for the best rates of interest and terms that you can get. The tips for getting a second mortgage when you have bad credit include:
Get your credit files ready
It is important to know your credit status if you are to locate the best lender for you. Different banks and credit firms report back their information to different reference agencies. Therefore, what shows with one may be different from another. With potential mortgage lenders using different credit reference agencies your credit files might be cleared as clean while you may find yourself declined by another. Because the files may differ massively according to what is registered, it is advisable to have a copy of files of each credit reference agency. You do not get penalized or scored differently for searching out your own credit files with these agencies. The credit score is affected by application for credit, which is free.
The effects of bad credits
A second mortgage almost always attracts a higher rate of interest compared with the first mortgage. This is because you will be adding to your existing debt, making you a greater risk to lenders. Furthermore, the second mortgage is often subordinate to the initial mortgage. Therefore, in the event of a default, the second mortgage is entitled to the balance while the first mortgage is entitles to the money paid before any other lender gets paid back. When you apply for a second mortgage while you have a bad credit makes you much risky. Costs of borrowing are always predicated on the risks represented by the lender. Hence, the worse the credit rating, the higher the rate of interest charged and the stricter the terms of borrowing faced.
Repair the credit report mistakes
Do whatever is in your capacity to improve your credit worthiness before applying for a second mortgage when you have a bad credit. Your credit history is maintained by the credit bureaus and you are entitled to have one free annual look at your credit reports with additional reports attracting a small fee. You can check to see whether there are any mistakes. If any mistakes exist inform the lender to advise the credit bureau to remedy them. This can quickly affect the credit scores.
Reduce the credit card debt
In case you have a large credit card debt, you can try to pay an amount that brings the debt to under 30% of your card debt limit. Make sure to pay off the credit cards in their entirety if you can and resist gimmicky fixes. Moving the credit card debt or consolidating debt to a lower rate of interest could easily hurt your chances for obtaining a second mortgage when you have bad credit. Multiple applications of credit work against you and are likely to lower the credit scores.
Shop for lenders
Use a mortgage broker to get bad credit mortgage. It is good news to know that bad credit does not mean you cannot get a loan. You will most certainly find someone who is willing to lend. Nevertheless, you must be ready to pay a higher rate of interest on your second mortgage while you have a bad credit. Mortgage brokers can help you shop for many lenders for purposes of finding the best rate that you qualify for under your particular circumstances.