If you need a home loan and your credit is not in great shape you may want to consider getting a bad credit mortgage.
What is a bad credit mortgage?
A bad credit mortgage typically has an introductory interest rate that is fixed for 2-3 years. This introductory rate
will be substantially higher that the interest rate you would get on a conventional 30 year fixed rate loan. After the initial period, the interest rate on a bad credit mortgage will adjust periodically.
Why is the interest rate so much higher on a bad credit mortgage?
If you have bad credit, the chance that you will default on your home loan is greater than someone who has excellent credit.
In order to compensate for this extra risk, the lender will charge a higher interest rate on the loan.
Will I have to pay this higher interest rate for 30 years?
Not necessarily. People who get a bad credit mortgage typically do so because they are trying to get their credit back into good standing.
If you make your monthly loan payments on time for two (2) consecutive years, you can refinance the bad credit mortgage with a coventional loan with a much lower interest rate.
What kind of fees will I be charged for a bad credit mortgage?
A lender can charge you more fees for a bad credit mortgage compared to a conventional home loan. Fees can range from 1-6% of the loan amount.
Although the interest rate and fees are higher for a bad credit mortgage, most borrowers of these types of loans do not complain.
Lenders say that after being turned down for credit so many times, people with bad credit are often grateful that they can get into a home and realize the American dream.