In 2006, all but the most financially irresponsible people could easily find a mortgage that allowed them to purchase their dream home. With profit-focused mortgage brokers and a lending sector that was focused on growth at any expense, finding a home loan that lasted for several decades was one of the easiest activities out there, leading many people to invest heavily in residential property.
However, as they say, what goes up must come down, and boy did the real estate industry shoot to the ground in a major and remarkable way. While 2006 will undoubtedly be remembered as a year of immense success for the real estate industry, 2007 is likely to be thought of as the opposite – an alarming period of rapid declines, in which hundreds of thousands of properties were abandoned.
It’s an event that, in hindsight, is fairly easy to spot. Speeches like Peter Schiff’s at the Mortgage Banker’s Association dinner pushed light onto the incoming downfall before it happened, and an entire range of articles today explain exactly what went wrong in great detail. However, during a peak period such as that seen in 2006, it’s hard to see where and how things are really moving.
Today, the mortgage industry couldn’t be more difficult. While it’s no longer as tight and restricted as it was during the post-boom days of 2008 and 2009, it’s neither an easy-credit situation nor is it an anti-lending field. Mortgages are available – easily available for those with history – but not in the same way that they once were, and particularly not with the same types of application forms.
You see, acquiring a mortgage with bad credit in 2005 or 2006 was a simple process. Brokers, who were focused immensely on short-term goals and maximizing their commissions, encouraged most of their applicants to fabricate their income, allowing them to access mortgages that were out of the range they could afford. Many, in fact, fabricated information on behalf of their major borrowers.
This resulted in a sea of products for those with poor credit, almost all of which were irresponsible in their design and disastrous in their long-term implications. No-paper ‘liar’s loans’ were a leading product for the industry, building businesses and making thousands of brokers wealthy. However, a boom on this magnitude always leads to a bust – and the bust has made acquiring loans quite tough.
This is particularly true for people with bad credit, who are often locked out of loans today. They’re unable to find standard mortgages, pushed away due to their greater risk of default and an increased likelihood of their properties being foreclosed on. As a result, many people with even small slashes to their long-term credit score are unable to qualify for even a small loan or residential mortgage.
Even with a significant deposit on the property’s value, this remains the case. We’ve all heard horror stories of a single hire purchase payment or stolen video tape ruining credit for life, and in the loans environment many of us are forced to deal with today, this is a reality. A tiny mistake can often lead to a long-term credit shortage, making it tough to qualify for a mortgage even with a large deposit.
However, there are solutions – two simple solutions, in fact. The first is to use a mortgage that has been designed from the ground up for borrowers with poor credit history, a poor credit rating, or an extensive history of late payments or defaulted loans. These allow almost any borrower to access a loan, often at a scale that allows for basic home, condominium, or apartment purchases.
These loans do have their fair share of risks attached – they’re high-risk for the lender, as a borrower with a history of credit issues isn’t exactly unlikely to default. Because of this, they’re also risky as a borrower. Interest rates are generally significantly higher than those on a standard loan, and the fees applied to the loan can make it a significantly greater expense than a most home loans or mortgages.
The alternative, and in fact, the recommended solution, is to work not on the availability of loans for people with poor credit, but on your credit score itself. With just a few short-term loans, you can get a credit score that’s the envy of your peers. All it takes is a little financial responsibility – something that can revolutionize and dramatically improve your life with the right time scale and outlook.
Many people opt to do this by using small, short-term loans such as a cash advance or credit card-type purchase. This can be for as little as one hundred dollars, making them a great way to establish a long-term record of timely and frequent repayments. Alternatively, many other people choose to use car financing options or cash advances to build a credit history that makes mortgages available.
These two solutions form the backbone of accessing mortgages and home loans, and deserve a great deal of thought. Given the value of property – a value that, unlike in 2006, is now accurate – a loan, whether on a home or apartment, is a valuable financial asset. Don’t lock yourself out of one – build a long-term credit history and gain access to home loans and other highly valuable opportunities.