A bad credit home loan, is a loan for someone who has had some problems with their credit in the recent history.
Bad credit home loans are charged a higher interest rate to compensate the lender for the increased risk of default. You should try to improve your credit by paying on time, paying down debt and consulting with your mortgage broker for advice.
With low credit, many lenders have more non-conforming loan programs that specialize in lower monthly payments. These typically include interest only payment options to lower those monthly payments.
If your credit falls below a FICO score of 500, you may have gone from bad credit to worse. However, there are alternatives outside of the traditional lending industry to refinance even if your credit score is below 500. No matter how bad your credit, if you have 30% or more equity in your property you may qualify to refinance even if the credit score is below 500.
Buyers with lower credit scores may still qualify for low loan rates and the ability to purchase a home with only 3% down payment. This type of financing is availible through FHA mortgage financing. Backed by the government FHA loans offer more flexibility then traditional conforming mortgages and have low rates as well. Ask your mortgage broker about FHA programs if you have recently been turned down for conventional financing.
If you are a veteran with some credit blemishes, you may also qualify for VA financing. The Veterans Administration offers purchase money loans for up to 100% financing and has refinance options as well. Check with your mortgage professional to review your options.
Bad Credit actually refers to people who either, pay slow or have collection accounts or both. Its best to concentrate on paying off bills one at a time and make the minimum payments on remain accounts. Tear up your cards and only have one for emergencies.
There are many different programs for credit troubled buyers. You may still be able to get 100% financing but be prepared for higher interest rates.
Its important to learn to avoid the habits that caused poor credit to begin with. Ask your preferred Mortgage Professional which items on your credit history are most damaging to your FICO. It takes time to turn bad credit around, but the results will save you thousands on your next home loan.
Generally speaking the lower your credit scores, the higher your interest rate will be. In addition having a lower credit score may also affect how much of a loan, or how high of an LTV (Loan to Value) your mortgage lender will let you qualify for.
Example: A person with a 600 credit score may be able to qualify for 100% financing at a 7% rate while a 510 credit score may only be able to qualify for 85% financing at a 8.5% rate.
Therefore, you can see the importance of trying to keep your credit score high and the potential savings you can obtain by working hard to raise your credit scores.
It is a good idea to try to improve your credit score before applying for a mortgage. The difference in interest rate will literally save you thousands. If you have known credit issues, I may be able to help you resolve them, or refer you to a reliable credit repair company that can. Call me at 888-418-4467 for more information.
If you have bad credit in addition to a higher interest rate, you may also get a loan with a pre-payment penalty and/or more points on your loan.
A common strategy for borrowers with poor credit is to get a 2 year ARM. The rate is fixed for the first two years which gives you time to imporve your credit, and show a history of timely payments. After the two years if your credit has improved you can refinance into a more traditional fixed rate loan at a lower rate.
Home buyers with bad credit background should expect to pay higher interest rates than those with good credit. Lenders charge higher rates because the default risks with poor credit home loans are higher.
Higher interest rate loans for those with bad credit are a good short term fix. They can allow you to stay in your home while doing the things needed to repair your credit. Then in 2 or 3 years you can refinance to a much lower rate.