Article by Dennis Chase, FreeMortgageIndex.com
Bad credit mortgage could pose a problem in taking a second loan or in applying for refinance mortgage. But there are a variety of bad credit lenders who specialize in dealing with borrowers with low credit ratings. These bad credit mortgage lenders are referred to as “sub-prime” or “hard money” mortgage lenders. Homeowners have bad credit when they have low credit ratings. There are various reasons that determine bad credit. Some of the factors include absence of assets and equity in home, low FICO score, low rate of income and much more.
Since bad credit mortgage poses a greater risk for the lenders, the rate of interest for bad credit mortgage is very high. But there are a number of tips that will aid you to get home loans easily even with bad credit mortgage. It is essential to find an effective real estate deal. It is essential to find property that has equity in it to make it easier for you to get financing on your property. Creative financing is another good option. Try for second mortgage on that property. Make a contract whereby you will be paying monthly installments in the form of a fixed sum of money. Apart from the monthly payments, make it a point to mention that the total amount will be paid with a couple of years. This type of agreement looks promising and also gives you time to refinance.
Save for down payment should be your aim. You may find lenders ready to provide you with 100% financing. You can lower the interest rate by placing around 5% down payment. But if you prefer not to have a down payment, you can refinance sometimes later with low rate of interest. You can even try to improve your credit score by making all the present payments on time and keeping the credit enquiry number down.
Credit score plays a vital role in sanctioning mortgage loans. When the score is lower than the average, it makes you a bad credit holder and is a drawback for you. It is the credit report that bears all the important information on the history of your credits and finances for a period of time. It consists of four major types of information including your identification, public reports about you, all your credit related information and your finance details. The credit report also bears all the bankruptcy information, debt and payment records. With the help of all these information, it calculates with the aid of mathematical procedure, your credit score and the credit risk score. When this score falls below 500, then you are considered to be a bad credit holder. The credit score is also called as FICO score.
There are a number of lenders who provide bad credit mortgage. Before opting for one, it is essential to educate yourself on bad credit mortgages to identify the catch. Bad credit mortgage usually comes with a high rate of interest. Due to the risk factor that is involved, the lenders charge a very high rate of interest from the borrowers. Discount points in credit refer to a certain percentage of the total purchase value. A higher discount point is usually charged for bad credit mortgage borrowers. Usually the points go up to five, but there are also cases where the point rose to ten. The bad credit mortgage borrowers also have to pay a higher down payment compared to the rest. But then, a huge down payment reduces the monthly rates that you have to pay on your bad credit mortgage. Bad credit mortgages are rated as the adverse mortgages or the non status mortgages.
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