A bad credit mortgage is a mortgage product designed to aid people who have had problems with credit is the past, the lending criteria varied from allowing one or two missed payments to lending money to bankrupts and repossession cases. They would invariably have high interest rates and lend on a low LTV, loan to value, of the property which ensured high profits for the lender along with security on the property.
Bad credit mortgage refinancing loans help borrowers with credit problems refinance an existing mortgage to either payoff debt or get cash out. If your credit is poor because of excessive credit card debt then bad credit refinancing is one of the best ways to improve your credit score. Bad credit mortgage refinancing is typically for home owners who have credit scores under 620 and have late mortgage payments in the last 12 months.
Qualifying Credit Scores
Sub prime lenders are the main source for these types of loans and many will lend to bad credit borrowers with a 30, 60 and even a 90 day late payment on record. Although the amount of equity you can borrow will be greatly reduced with the amount of late payments you have. Qualifying Credit scores for sub prime loans begin at 500 and go all the way up to 700, at a 500 credit score expect to be able to borrow 70-80% of your home appraised value. The higher your credit score the higher the Loan To Value you can borrow.
Many sub prime lenders offer 2 or 3 year Adjustable Rate Mortgages to bad credit borrowers, short term Adjustable mortgages are not a good idea for the bad credit borrower. The biggest drawback to an ARM is that if you should fail to improve you credit score and be unable to refinance, your payments will begin to rise when your adjustment period begins.
The rise in payments can often be hundreds of dollars a month making your mortgage difficult to pay. When applying for a bad credit home loan It is best to stick with a fixed rate sub-prime mortgage, if you need a lower payment ask your mortgage broker about 40 year fixed rate sub-prime loans.
When it comes to finding a bad credit mortgage it is possible to trawl through all the mortgage lenders on the internet or alternatively visit all the high street financial institutions in an attempt to find one that will agree a loan. But, apart from being extremely time-consuming, in most cases it will be very frustrating and ultimately unfruitful.
Most of the companies that deal in bad credit mortgages are specialist lenders who do not operate on the high street, but mainly through specialist financial brokers. They are invariably experts on which lenders will be most suitable for each applicant’s individual circumstances and therefore able to target borrower’s applications more effectively.
Although bad credit mortgage loans are one of the few options for people with bad credit, these loans also have certain disadvantages. The major disadvantage being the higher interest rate you would have to pay compared to what people with good credit scores are paying. This means that you monthly payments will also be high and you might have to settle for a home that is less expensive that what you originally wanted.