Mortgage Loans for Bad Credit
Mortgage loans for bad credit have become more difficult to obtain due to the subprime lending practices that led to multiple bank failures. Individuals who want to buy a house should strive to improve their credit score by clearing old debts and staying current with other loan payments.
Individuals who feel they must enter into mortgage loans for bad credit should take time to review available options and creative financing strategies. These might include applying for home buying grants, entering into a lease-to-own real estate contract, applying for government sponsored home buying programs, or borrowing funds from a hard money lender.
One popular option for buying a home with poor credit is Home Path Mortgage. This program is available through Fannie Mae and was established to liquidate bank owned foreclosure homes. In addition to offering discounted properties for sale, Home Path has a low minimum down payment requirement of 3-percent.
Another unique feature of Home Path Mortgage is borrowers are allowed to obtain down payment assistance from outside sources. These might include a loan or monetary gift from family, friends, employers, or charitable organization.
Qualified applicants can apply for Neighborhood Stabilization Program (NSP) grants when buying bank owned homes in areas hit hard by foreclosure. NSP grants are provided by the Department of Housing and Urban Development; however, applicants must submit their grant application to designated agents. A complete list of NSP grant providers, along with program details, can be found at HudNSPhelp.info.
Lease-to-own contracts can help individuals with bad credit establish a solid payment history while working toward purchasing a home. Sellers who offer this type of financing option typically require buyers to provide a down payment and contribute a portion of rent money toward the home purchase. For example, sellers charge $1000 per month for rent and contribute 40-percent, or $400 per month toward buying the property.
Rent-to-own contracts generally extend for two to five years. Sellers can either lock-in a purchase price when the contract is signed or require renters to purchase the home at current market value when the lease contact expires.
Lease-to-own contracts should be executed by a real estate attorney and contain legalese which protects all parties in case of default. When buyers default on rent-to-own contracts they usually lose all vested funds. Therefore, careful consideration should be given to this home buying option. As long as a legal contract is in place and both parties abide by the terms, lease-to-own properties can be a great temporary substitute to mortgage loans for bad credit.
Individuals who have filed personal bankruptcy or lost their home to foreclosure often have the hardest time obtaining financing to buy a house. One option is to obtain a hard money loan from private real estate investors or investment groups.
Hard money lender real estate loans are quite costly and should only be used as short-term financing. The majority of hard money lenders require buyers to provide upwards of 50-percent down payment and charge interest rates between 14- to 25-percent.
It is important to realize that all bad credit mortgage loans will be assessed a higher rate of interest than conventional home mortgage loans. Borrowers should strive to refinance mortgages through a conventional mortgage lender or credit union within a year or two.
Borrowers must make every effort to pay bad credit mortgage payments on time and in full each month, as well as maintain a positive payment record with car loans, credit card payments, student loans, utilities and insurance premiums.
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Published on April 29, 2010 at 03:51 AM