Bad Credit Second Mortgage Home Loan

Everyone wishes they had good credit. Having good credit makes life a lot simpler. The truth, however, is that a large number of people have less-than-perfect credit. For the most part poor credit is caused by a short-term problem that has a solution. However, once the problem is solved, the bad credit rating can linger with you for years, causing all sorts of trouble.

One of the places that bad credit can really hurt you is in getting a second mortgage home loan, also known as an equity loan. Most lenders have underwriting guidelines that are chiseled in stone and if you stray outside their boundaries even a little bit you are likely to be turned down for your loan. This is true whether you are looking for a first mortgage or for a second mortgage.

One reason for this is that many lenders sell their loans to either Freddy Mac or to Fannie Mae, two government-affiliated programs that are designed to encourage home ownership. In order to sell a loan to either of these agencies the loan must meet certain criteria. When a loan meets all of the criteria is it referred to as a “Conforming Loan” and when it fails to meet the criteria it is called a “Non-Conforming Loan.” One of the criteria has to do with credit worthiness – which is why many lenders turn down borrowers with credit problems.

Fortunately there are lenders with more flexible guidelines who are willing to make Non-Conforming Loans. These lenders are often referred to as sub-prime lenders, meaning that they will make loans to people whose credit is less than prime (perfect).

Borrowers who have trouble proving their income, or who have too much debt, or who have had late payments or had loans go into collection, or who have had a bankruptcy or a foreclosure can still find lenders who will make a second mortgage home loan.

If you fall into the sub-prime category a written explanation of any problems you have had in the past, along with an explanation of how and why those problems won’t happen again in the future, often are very helpful when it comes to securing a loan from a sub-prime lender. Also, take whatever steps you can, such as clearing up any current delinquencies or other credit problems before approaching a lender for a second mortgage home loan.

If your credit is less-than-perfect you can expect to pay a higher rate for your second mortgage home loan – but as long as there is sufficient equity in your home to cover the loan you are trying to get, it is very likely that you will find a lender willing to make a second mortgage home equity loan even if your credit is less-than-perfect.