The Basics Behind Bad Credit Mortgages
Bad credit mortgages are reserved for anyone who is trying to refinance their existing mortgage or looking to purchasing a new home, but lack the credit or financial history to qualify. These bad credit home loans are often the only option available to borrowers whose credit score is below 619.
Finding Lenders Who Specialize In These Loans
The first step is to find good lenders that can analyze your financial situation quickly and help match you with the right lenders of last resort.
Most poor credit lenders look at a borrower's entire financial situation in order to find the best option. Reputable bad credit lenders will have access to many direct lenders for all financial situations. Some lending groups may even have a pool of funds that they control directly and can provide loans very easily if the borrower is deemed a good fit.
The Upside Of Bad Credit Mortgages
For many borrowers, bad credit mortgages are their last chance to acquire funding. Even though borrowers are faced with high interest rates, it is often a better option than foreclosing on the property (where the borrower loses all equity in the property). In addition, these loans can be funded very quickly, sometimes as soon as 5-7 days. Compare this with a traditional home mortgage loan that takes no less than 30 days to fund. Finally, because these loans are private, they do not hurt a borrowers credit score, allowing them to rebuild their credit during the life of the loan and eventually refinancing into a traditional bank loan.
The Downside Of These Loans
Bad credit mortgages are not cheap - expect to pay 10-15 APR, plus several points up front. Most bad credit mortgages will vary in their rates and terms based on the particular financials involved. Loan to value (how much equity you have in a home) will also affect your ability to get bad credit mortgage refinancing. The industry LTV is 75%, meaning a borrower needs 25% equity in a property to be considered for a bad credit home loan mortgage se. However, if your FICO is above 520, you may be able to qualify for subprime loans, which requires much less equity because it is an institutional loan (as opposed to private money).
Bad Credit Second Mortgages
Bad credit second mortgages are available in certain states, although they are often difficult to get. Lenders rarely want to be in the second position (the last to be paid should the borrower default on their loan). However, there are lenders who offer bad credit mortgages in the second position. Talk to an individual bad credit mortgage company to see whether they offer this program.
Before considering a poor credit loan, be aware of the rates and terms that you will be paying. Make sure that you can make the payments and feel comfortable with all of the loan specifics. It is always a good idea to speak with several of these lenders to insure that you are receiving the most competitive rates and terms for your financial situation.