Getting a Bad Credit Mortgage Loan in Today’s Lending Environment
Guest Post: The lending industry has undergone many changes during the last few years. Lenders are having difficulty meeting their obligations, and many have filed bankruptcy. Some loan programs are being eliminated making it harder for people with poor credit to get good loans.
Factors that Led to the Decline of Bad Credit Mortgage Lenders
- Increasing interest rates
- High foreclosure rates
- Loan buybacks
- Defaults on commitments
People with bad credit have fewer options for obtaining mortgage loans today. Some loans are requiring larger amounts of cash for down payments making these loans impossible for some people to obtain. Lenders are setting harder guidelines for first time homebuyers since they have been identified as being high risk for mortgage loans. Individuals who apply for bad credit mortgage loans can expect to wait longer for approval. For some individuals, the only choice for a first time homebuyer’s loan is with a hard moneylender.
What to Expect from a Bad Credit Mortgage Loan
- Individuals who do qualify for a typical bad credit mortgage loan can expect to receive their first mortgage with high interest rates, and if it is the second mortgage, they can expect the interest rates to be even higher.
- Some of these loans will offer fixed payments for the first couple of years, and then the payment can change to a higher amount.
- These bad credit loans will usually have a prepayment penalty attached preventing an individual from getting out of the loan without a large price.
Even though some lenders are offering bad loans to individuals with bad credit, some lenders offer loans with better terms. These good loans allow individuals better opportunities to acquire money to become a homeowner.
Good Loan Options
- Some lenders do not base the loan on an individual’s credit score, and these lenders are more willing to lend almost all the money necessary for the home.
- Alternative ways are used to cover the closing costs and other expenses for obtaining the loan instead of the buyer having to come up with large down payments.
- Someone can assist in helping the borrower become qualified by becoming a co-borrower on the loan.
- Grants are available to help with down payments.
- Some good lenders welcome first time home buyers.
- Loans are available with no penalty for prepayment. This allows individuals to be able to refinance once their credit rating is improved. They can refinance with lower interest rates for a better loan option.
Miscellaneous Things to Consider When Choosing a Bad Credit Mortgage Loan
Some lenders offer two options for interest rates. One is the fixed rate, which remains the same percent throughout the loan. The other one is the variable rate, which is flexible. When the market rate changes, it will cause the interest rate on the loan to change as well.
Some mortgage loans will allow individuals up to thirty years to pay back the money. However, it is better if an individual can pay the loan back sooner. A property that is not completely paid for will be harder to sell if someone chooses to put the property on the market. In addition, if an individual fails to meet the payment obligations, the loan will be in default and the bank can take possession of the property.
Before financing a property, an individual will need to do some research to find the best lender. By researching loan terms, an individual can find better choices for bad credit mortgage loans. The lenders will need to be investigated to ensure that they are reliable.