Mortgage Loans for Bad Credit
Mortgage loans for bad credit are an option for debtors unable to obtain home loan financing through a conventional lender. The unfortunate truth about bad credit loans is borrowers will be charged a higher rate of interest, which increases their monthly payment and overall loan balance.
Interest rates on mortgage loans for bad credit will vary depending on how bad the borrower's credit actually is. For example, borrowers with a FICO score of 575 typically pay more than borrower's with a FICO score of 620. Although both FICO scores fall into the bad credit category, borrowers with a score of 620 are considered a lesser financial risk to mortgage lenders.
Although bad credit loans cost more than conventional home mortgage loans, they can assist in helping borrowers establish credit. If borrowers make home loan payments on time and in full each month, they can refinance mortgages and obtain a reduced interest rate within a year or two.
Individuals who want to buy a house, but have poor credit should consider Home Path Mortgage financing. This special financing option is offered through Fannie Mae and used to purchase Fannie Mae bank owned foreclosure homes.
Finance options through HomePath mortgage include provisions for debtors with bad credit. In addition to selling homes below cost, Home Path offers low down payment requirements and allows borrowers to utilize down payment assistance.
Conventional home loan down payment requirements hover between 10- and 20-percent of the purchase price, while the Home Path requirement is 3-percent. Borrowers can apply for Neighborhood Stabilization Program (NSP) grants which can be used toward the down payment requirement.
Individuals with a previous foreclosure or bankruptcy often face multiple challenges when applying for a home loan. One option to consider is hard money loans which are offered through private real estate investors and investment groups.
Hard money loans are not cheap and often require borrowers to provide up to 50-percent down payment. Interest rates can hover around 18- to 25-percent. When obtaining hard money lender real estate loans, borrowers should strive to refinance within one to two years.
Homeowners with bad credit who need to refinance might be able to obtain assistance through Obama's Making Home Affordable program. Eligibility requirements include being current on home loan payments and not being more than 30 days late on payments within the previous twelve months.
Making Home Affordable loan modification program is set to expire on June 10, 2010. However, other programs are available to help borrowers with bad credit save their home from foreclosure. These include Making Home Affordable loan modification, second lien modification and foreclosure alternatives.
These are just a few options for obtaining mortgage loans for bad credit borrowers. Discover more home loan finance options and resources in our bad credit mortgage article library. We encourage you to subscribe to our mailing list to receive instant notification when new home buying articles are published.