A bad credit home loan, is a loan for someone who has had some problems with their credit in the recent history.Generally speaking the lower your credit scores, the higher your interest rate will be. In addition having a lower credit score may also affect how much of a loan, or how high of an LTV (Loan to Value) your mortgage lender will let you qualify for.
Example: A person with a 600 credit score may be able to qualify for 100% financing at a 7% rate while a 510 credit score may only be able to qualify for 85% financing at a 8.5% rate.
Therefore, you can see the importance of trying to keep your credit score high and the potential savings you can obtain by working hard to raise your credit scores.
It is a good idea to try to improve your credit score before applying for a mortgage. The difference in interest rate will literally save you thousands. If you have known credit issues, I may be able to help you resolve them, or refer you to a reliable credit repair company that can. Call me at 888-275-6788 for more information.
If you have bad credit in addition to a higher interest rate, you may also get a loan with a pre-payment penalty and/or more points on your loan.
A common strategy for borrowers with poor credit is to get a 2 year ARM. The rate is fixed for the first two years which gives you time to improve your credit, and show a history of timely payments. After the two years if your credit has improved you can refinance into a more traditional fixed rate loan at a lower rate.
Home buyers with bad credit background should expect to pay higher interest rates than those with good credit. Lenders charge higher rates because the default risks with poor credit home loans are higher.
Higher interest rate loans for those with bad credit are a good short term fix. They can allow you to stay in your home while doing the things needed to repair your credit. Then in 2 or 3 years you can refinance to a much lower rate.
There are many different programs for credit troubled buyers. You may still be able to get 100% financing but be prepared for higher interest rates.
Its important to learn to avoid the habits that caused poor credit to begin with. Ask your preferred Mortgage Professional which items on your credit history are most damaging to your FICO. It takes time to turn bad credit around, but the results will save you thousands on your next home loan.
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