What Bad Credit Means for Your Mortgage

No one desires to have bad credit. The limitations it comes with can be quite devastating. However, having a poor credit score is not the end of the world, and there are a number of funding options you can still access, despite the poor score. If you wanted to go for a mortgage, yet you have a poor credit rating, the process will be slightly more difficult, but ultimately, you are likely to still manage to get a mortgage.

If you are such an individual, here is what bad credit will mean for your mortgage:

You will get less optimal mortgage rates

Bad credit implies that lenders will be less willing to advance their funding to you. The big banks and traditional lenders will not be interested in working with you, and your only options will be to work with other lending institutions or private mortgage lenders.

You will need to have a bigger down payment

The other limitation you will face when you need a bad credit mortgage, is that you will have to set aside a huge down payment. This is because lenders consider you as a “high risk”, and so they compensate, and reduce the risk on their end by taking a huge down payment from you. But a bigger down payment should not be considered as a curse since the bigger the down payment, the better the mortgage rate, and the shorter the time needed to repay it.

Possibility of paying additional fees

Though this is not typical for all lenders, applicants with bad credit may have to pay additional fees, which would otherwise not be necessary. For instance, the lender may require you to pay up to 1% of the mortgage value before they can process your application. Additionally, brokers may also charge you the same since they won’t have any financial benefits due to your poor credit. Such additional fees will, however, vary from one lender or broker to another.