Is A Bad Credit Mortgage Still Available? How To Obtain One
Bottom Line Facts:
· Sub prime lenders will be your resource for a bad credit mortgage.
· In spite of this year’s reported crisis in the sub prime lending arena, a mortgage loan with bad credit is still obtainable.
The Good News:
· Lenders that specialize in mortgages for those with bad credit are competing for your business.
· Although you will have to pay a higher interest rate for your mortgage, your home will still appreciate in value. Then, after maintaining a good payment history for a period of time, you may be able to refinance your mortgage at a lower interest rate and lower your monthly payments.
The Bad News:
· If you have bad credit, mortgage options are going to be much more limited than for those with better credit because people with poor credit are considered higher risk to lenders.
· Lenders are less willing to offer a good interest rate to those with bad credit because:
· The competetion for their business is less and so the lender can easily charge high rates.
· Higher rates cause people to put more thought into their loan and as such, they become more committed to the idea of the mortgage because it costs more.
The Process - What You Can Expect
· The lender will run the credit report and analyze the credit score, debt-to-income ratio, and employment history for all parties on the loan application.
· You may also be asked to provide statements from your utility companies and other creditors to help form a complete picture of how you manage your finances.
· The lender will then inform you of how much you can afford to spend on a mortgage and the terms of the proposed home loan.
· When applying for a bad credit loan, ask your lender about the costs involved in obtaining the loan, the length and interest rate of the loan, and the ability to refinance at a lower rate down the road.
Sample Illustration of Terms for a Bad Credit Mortgage
· Bad credit home loans can include a 2/28 home loan or a 3/27 home loan. The interest rate for a 2/28 loan is fixed for two years and fixed for three years in a 3/27 loan. This means that there will be a prepayment penalty during the first two or three years of the mortgage and the home loan cannot be refinanced prior to that time.
How to Apply for a Bad Credit Mortgage
· Contact several lenders that specialize in mortgages for those with bad credit. There are numerous variations in the interest rates and terms offered by these types of lenders.
