Bad Credit Loan On Mortgage Through Sub Prime Lenders |
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Your credit score determines the category into which you will fall regarding bad credit loan on mortgage. A credit score of 680 or more will entitle you to a preferential treatment, whereas a score of less than 600 will place you in the sub-prime loan category. In this category you will have to be creative to get your bad credit loan on mortgage and not lose money. While people with damaged credit find it difficult to access financing, sub-prime lending makes it easier for them to own a home. Most sub-prime lenders provide valuable service, but there are many others who are unscrupulous and take advantage of gullible customers. They charge excessive fees, use deceptive practices, and put consumers under such heavy debt that they can never repay. It is, therefore, essential that you should thoroughly do some research work before finalizing a sub-prime lender for bad credit loan on mortgage. People with low credit scores are considered risky borrowers as they might have occasionally missed some payments and fallen into the poor payment history category. Such people would still qualify for a bad credit loan on mortgage through a sub-prime lender but they would have to pay a much higher interest rate. The lender is normally willing to take such a risk and for that they charge a little to cover the risk. All that the consumer has to do is to go along with this plan, improve the credit rating and refinance at a better rate later. For example, you might want to buy a house for $100,000 and you only have about 5% to put toward the advance payment. Moreover, you have poor credit and as such you present a double problem to the lender: your poor credit and a very high loan-to-value, or LTV, which will be 95% as you will need to borrow $95,000 on a $100,000 home. Normally, lenders prefer to have purchasers pay about a 10%-20% down payment to lessen chances of the borrower defaulting on the loan, which will reduce the lender's risk. As such, your bad credit mortgage application will be taken to the best sub-prime lender by your mortgage professional. In the above case, if your debt-to-income ratio (amount you owe monthly vs. gross income monthly) is 50% or less, and your credit score is above 500, you'll likely get your $95,000 loan. However, your monthly mortgage payments will rise as the interest rate will be between 10% and 20%. To get a good deal on a bad credit loan on mortgage, you will be left with only two options. The first option to improve your bad credit loan on mortgage is to reduce your LTV by applying for a first mortgage of $80,000 (80% LTV) and a second mortgage of $15,000 (15% LTV) instead of taking a loan at 95% loan-to-value. You will save money by taking a loan of $80,000 at 8.75% for a monthly payment of $629 and a second mortgage of $15,000 at 13%, with a monthly payment of $166, instead of borrowing $95,000 at 12% with a monthly payment of $977. Thus you would be paying only $795, thereby saving $182 monthly over the first mortgage at 12% and $2,184 each year. The second option requires you to take an adjustable rate mortgage, which also offers great savings much like bad credit loan on mortgage. Sub-prime lenders normally offer a two-year ARM with a rate of 7% or 8%, instead of the 10% that is normally applicable on a 30-year fixed loan. You could also look into the option of combining option one and two, and taking an ARM on your first mortgage at 80% LTV and still taking a second mortgage for $15,000. You would definitely save more by doing so. |
