Poor credit loans are loans where the borrower has had some problems with their credit and cant qualify for a conforming loan.
When a person has a credit score in the low 600s or lower, lenders consider a loan to that person to have more risk. Consequently, the interest rate will be higher than those that are advertised on TV and radio. Unless a fee is paid to get a longer term fixed rate, the loan will usually be fixed for 2 or 3 years. That will give the borrower some time to repair their credit and refinance at a better rate at the end of the initial term. The good news is that you CAN get a fresh start, if you have less than perfect credit.
You may want to look into a credit repair company and use their service to increase your credit score. Ask your mortgage broker for a referal to a reputable company.
Many subprime lenders offer programs for people who have been discharged from a bankruptcy by only one day. Some of these lenders will even go as high as 100% loan to value.
Most lenders have a minimum score requirement of 500 to qualify for financing. If your score is below that level you may have to seek private hard money investors. These private loans often come with higher fee's and rates that conventional or sub prime lenders.
Most people have the misconception that poor credit loans are costly. This is untrue. Discuss your situation with your trusted broker and negotiate for the best loan you deserve!
Even though a poor credit loan is costlier than the A grade counterpart, it often makes perfect sense for a homeowner to get such a loan. They are often a short term solution to consolidate debt, increase cash flow and rebuild damaged credit.
Remember, although your credit profile is a history, your credit score is a snapshot, and a knowledgable mortgage professional can help you maximize your scores. You can also help yourself by getting a mortgage and building a history of timely payments. These loans are typically gate-way loans based on the premise that you will rebuild your credit profile and refinance into a more favorable position when you qualify.
Poor credit loans are provided by lenders at higher rates because there is a high risk with that these loans will not be paid back. Sometimes a prepayment penalty is also involved.
Many people who believe they have poor credit, actually have credit scores that are only a little below average. These people can usually still qualify for very good rates.
To offset the poor credit lenders require a higher intrest rate than on a conforming loans.
There are loan programs available specifically for borrowers with poor credit, but there are often extreme limitations that may keep the borrower from being able to qualify. For example, with a 475 fico score, you may be able to qualify for a loan, but only for 70% of the value of the home. This would mean that you would have to come up with a 30% down payment if you are purchasing the home. For most borrowers, this would prevent them from being able to buy the home.
Poor Credit Loans are available to consumers that fit into a fico score bracket starting as low as 475. Lenders view mortgage history and consumer credit as a part of the approval process for most poor credit loan situations. LTV or (Loan to Value) is also a factor in the approval process of a poor credit loan. Lending institutions limit the LTV to a 70% quailfying percentage, your appraised value or equity position in your home determines the LTV. Good mortgage history, consumer credit, and LTV are the 3 keys in the loan process which will help you qualify for a refinance or purchase of home.
Lenders charge more points and higher interest rates to those with poor credit. Loans to borrowers with poor credit carry far more risk and lenders deserve compensation for this risk. Borrowers with good credit should not let themselves enter into a loan agreement where they pay points and rates based on a bad credit loan. One national company recently filed bankruptcy to protect themselves from litigation on fraudulent loan practices.
Lenders make a clear distinction between Poor Credit profile and No Credit profile. No Credit merely means the borrower has not had a history of using credit. A person with Poor Credit/Bad Credit profile has demonstrated a pattern of mishandling credit.
Credit can always be improved upon in time. Try picking up a secured credit card to begin rebuilding your credit safely.
People with poor credit should typically try and finance their outstanding debt through their loan. Consolidating credit cards and high interest loans will not only lower their overall monthly payments, but by reducing credit balances it will also help improve their credit scores.
Do not stay in a poor credit loan for a long period of time. As time goes by, with better repayment behavior, you can refinance into a loan with better terms in a relatively short amount of time. Contact a mortgage professional every 6 months to have him/her evaluate your credit scores and your current mortgage situation.
Poor Credit Loans come with higher interest rates and usually always come with a 2 or 3 yr pre payment penalty.
The pre pay penalty that may be assigned to your loan is a protection to the lending institution. In addition to the higher interest rate and fees, the lender assigns a pre pay penalty on the loan to ensure they make a return on their investment. The pre pay penalty can be bought out usually with a fee.
In many cases, lenders will waive the pre pay penalty if the borrower will accept a slightly higher interest rate.
The loans are usually 2-3 year adjustable rate mortgage to keep the payments at a reasonable amount. The rationale behind this is to refinance you in 2-3 years to get you into a better situation.
These types of loans can give you the chance to clean up your credit and give you the leverage needed to avoid bankruptcy. They also provide the opportunity to pay off back child support, late payments, and supply the cash needed for home improvements.