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Welcome To The World of B Paper Mortgage Financing

Throw out the idea of applying for a home loan. One of the first things that will pop into peopleâs minds is their credit score. After all, you need a great credit score to get financing, right? Umm, not really.

Welcome To The World of B Paper Mortgage Financing

The biggest fear of most potential home buyers is the mortgage application. It is like walking down into that scary cellar in a horror movie. You are not sure what is down there, but you have a pretty solid feeling it is not going to be good. In this lexicon of home financing, we are talking about credit scores.

Credit scores are simply an algorithm applied to your credit reports. The big three credit reporting agencies are Equifax, Experian and TransUnion. As strange as it sounds, the reports each of them maintain for you will be different. This is because creditors often only report to one or two of the agencies. Strange, but true!

Regardless, you lender is going to want to size up the risk of lending you a large quantity of money. To make sense of your credit, the lender will get a FICO score for you. FICO is short for Fair Isaacs, the company that created the calculation. If you get approved, you will love this company. If you get rejected, the feeling will be the opposite.

In the world of home financing, your FICO score is not referred to as a FICO score behind closed lender doors. It is referred to as âpaperâ. Specifically, your score will fall within a certain range that is similar to the high school grading system. If you have an excellent score, you are considered âAâ paper. If you have a few problems, you are âBâ paper and so on down the line. As the score gets worse, most people think the rate of application approval also goes down. This is not necessarily true.

Most lenders you see in the paper or on television are interested in A paper borrowers. If you show up with C paper, you are going to be rejected. Sorry, but that is the hard, cold truth. So, should you give up on your dream of owning a home? NO!

You might be surprised to learn that there are plenty of lenders that do not want A paper borrowers. These lenders specialize in people with less than perfect credit. Yes, they want those of you that have B, C and D paper, to wit, bad credit scores. These institutions are known as sub-prime lenders. If you have bad credit, this is who you should be applying with. Why would they want to give you money for a home? Well, they are going to make more money. In exchange for giving you the cash despite your credit, these lenders will charge you a higher interest rate and incidental costs. It may be half a percentage higher or more. The answer lies in your situation and just how bad your credit is.

So, should you rush out and look for sub-prime lenders? Probably not. The rates offered by these lenders can differ dramatically. If you select the wrong one, you can end up paying tens or hundreds of thousands of dollars more than you should have over the life of the loan. A better approach is to contact a mortgage broker. They are independent professionals that can show you the various packages being offered by the different lenders. This lets you find the most favorable rates and save a boatload of money.

At the end of the day, perfect credit is much like the idea of me dating Angelia Jolie. It is a nice idea, but probably isnât going to happen. If you credit is blemished or a disaster, contact a mortgage broker to see if there is sub-prime lender out there that will finance you. You will probably be shocked to learn there is.

Dan Lewis is with Great Western Mortgage - providing home loans for borrowers with good credit, bad credit and unique situations.

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Source: http://www.articlealley.com/article_110231_19.html

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