Put your fears aside. Just because you have bad credit, filed bankruptcy or gone through a foreclosure does not mean you cannot buy a home. You most certainly can buy a home with bad credit. But with a bad credit mortgage loan, you’re going to pay more than a borrower who has sparkling credit.
Everything About Bad Credit Mortgage Loans
We all know how important mortgage loans are when it comes to securing a home. But not everyone is fortunate enough to get a very good deal on a mortgage loan. Many people have a bad credit history owing to their faulty spending habits at a young age. Often the euphoria of landing the first job and getting a credit card of our own leads to a spending spree which results in debts. This however deters any chances of securing a good mortgage loan later on in life. But, now companies have come up with a loan that is designed specially for people with a bad credit rating. These loans are called as bad credit mortgage loan.
The Terms
It’s virtually impossible to believe that you have bad credit scores and yet you may get a mortgage loan with the lowest interest rates and scores. So bad credit mortgage loans may have higher interest rates than conventional mortgage loans. Let’s accept this part and move ahead. The interest rates are something that is determined by the mortgage loan company. But you need to understand that everything is negotiable. You can get some really good rates even if you have bad credit scores. The reason behind this is that now there are so many companies that offer bad credit mortgage loans, that competition has forced them to reduce rates in order to get customers. So negotiation is the key to securing some good rates.
Hunt For The Best Bad Credit Mortgage Loan
You need to hunt for the best mortgage loan. Many people make the mistake of signing up with the first lender that they go to. Remember, the next lender might just offer you a much lower interest rate and origination costs as well. Also try to get a general feel about the lender before you sign up for a loan. A lender who does not answer all your questions, who tries to rush up to a sale, is best avoided. How can a person who does not answer your questions before a sale help you afterwards? Seeking the help of a mortgage broker is also recommended as these guys have some amazing contacts. Yes, you will have to pay him some commission but it may well be worth it in the long run. These guys are experts in the business and they really know how to negotiate and bargain. Don’t be surprised at all if your mortgage broker helps you to seal a bad credit mortgage loan which have rates as good as a conventional mortgage loan.
Higher The Down Payment, Lower The Rates
This is the least that you can do in order to get some good rates on your bad credit mortgage loan. Save some money for your down payment. Remember, lesser the amount you pay as down payment, higher the interest rates will be. Even if it means that you have to wait for about 6 to 8 months for the loan, do it. Cut down on all unnecessary expenses to save up money for the loan.
The Numbers That Matter
Now let’s get to some numbers that actually matter a lot when it comes to the loan and the down payment. If you have a credit score lesser than 490 then you might have to shell out as much as 30% of the amount as down payment. This goes down to 20% if your score is 490-520. Whereas, if you have a score of 540, you can qualify for 90% financing. If a lender is willing to offer you 100% financing for a bad credit mortgage loan, then just keep an eye on the interest rates, closing costs and other terms.
Many mortgage companies are reluctant to finance people with bad credit or no money to put down. A bad credit mortgage lender helps people who have bad credit score, low income, etc.
A bad credit mortgage lender helps you get your loan approved much faster than programs offered by credit unions and banks. But you have to pay the price to get a bad credit mortgage loan. The loan you get will carry a higher rate of interest and will have higher closing fees.
It is advisable to check the rates with a few more bad credit lenders and compare. Even though you have to pay a higher rate, see that the one you settle at is reasonable and the most favorable. At present interest rates are low so try and get the best deal.
You can always wait a while, improve your credit score and then get a loan at a low rate of interest. Some bad credit mortgage loans carry a pre-payment penalty, so make sure your loan doesn’t have one. These bad credit mortgage loans have 6 months to 2-3 years pre-payment penalty. This means you have to pay huge sums of interest for at least 6 months before you can pay off the loan. If there is a pre-payment penalty you should take the loan that has the shortest term so that you can pay off the loan quickly without paying any penalty.
