A number of individuals with missed or late payments turn to home loans with bad credit for the purpose of consolidating debt. It is possible to put past due medical bills, unpaid credit card debt, small loans and automobile repossession deficiencies together. The borrower than proceeds to make a single repayment each month until the balance is completely cleared.
Unsecured vs. Secured Debt
All of the debt alluded to above is unsecured. Turning unsecured into secured debt is not normally a sensible strategy as it provides creditors with far greater powers. Instead of nuisance collection agency calls, the creditor will be able to get assistance from the court to recover their money. This involves the sale of the collateral to cover any money owed.
Debt Consolidation Loan Consequences
A home loan with bad credit is dependent on the homeowner having sufficient equity in their property. Collateral is necessary to protect the lenders legitimate business interests. Whilst understandable, defaulting on the agreement will ultimately lead to mortgage repossession. How long it will be before the repossession process comes into effect varies between states.
Defaulting on Home Loans with Bad Credit
Defaulting on the loan agreement can be dealt with through a mortgage modification or filing for bankruptcy. The borrower may receive additional time to clear any arrears on improved terms (extension of the agreement, lower APR or a reduction to the principal). Alternatively, a short sale is used to avoid paying the difference between the final house sale achieved and any mortgage secured on the property.
Alternatives to Home Loans with Bad Credit
The best debt solution for someone with poor credit is likely to be a Debt Management Plan or debt settlement program. These work by writing-off some of the debt that is owed and/or improving affordability. As the debtor already has a poor credit history, FICO scores aren't likely to worsen much further. A debt solution will show on a credit report for a period of seven years.
A home loan with bad credit is a way of improving affordability, but they also open the door to creditor harassment in the event of further financial difficulties. If poor credit and personal debt is a problem, see if an unsecured loan from Prosper or the best debt solution can help before proceeding.
Disclaimer: This article in no way attempts to give legal or tax advice. One should consult a licensed attorney, tax advisor, or other qualified professional before proceeding.
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