Not everyone enjoy a good credit standing to benefit from prime housing loans. But no matter how your FICO score stands, no one should be deprived to get a mortgage loan. You can still get what is called a bad credit mortgage with some conditions the borrower will have to live with.
What is Bad Credit Mortgage
Bad credit mortgage falls under the category of sub-prime lending called subprime mortgages which in the finance industry means lending at high risk to consumers with bad credit. It has emerged as a viable financing product to address the growing demand for housing loans from borrowers with poor FICO scores below 620 or people with high rate of default or those that have recovered from a bankruptcy filing or have had a County Court Judgment (CCJ) against them, provided they have a stable source of income.
Subprime lenders employ various methods to cover their lending exposures but the most common is with interest rates higher than prime lending rates. Getting sub prime loans can also be slapped higher loan processing, pre-payment penalties and service fees which lenders use to cover the cost of servicing and collecting defaulted loans. Late payment fees are also higher.
Getting a subprime mortgage
In general, it isn’t that difficult to secure a bad credit mortgage. Once you accept the fact that subprime loans incur higher interest rates and other restrictive penalty charges, it is only a matter of shopping around and getting good professional help to get the best deal.
Just like any lender, there are those that charge more than others. Here are some things you can do if you have a bad credit but need a mortgage.
- You can always wait for your FICO score to improve and get a mortgage at prime rates that are significantly lower than subprime rates. FICO score often can be improved over a period of 5 years or less with small short term personal loads that get paid full in time and no defaults on any scheduled payment.
- You could get any of those subprime credit cards but if used wisely, with no late payments and defaults, can get your FICO score to go up. It is often a matter of doing some math on whether the savings in interest rate is worth the wait, which is often the case considering that getting a high interest bad credit mortgage will be paid over years, usually 5-10 years and the money you will have paid in interest charges can be quite substantial over this period.
- If you simply have to get a bad credit mortgage loan, see if you can find one without a pre-payment penalty. This is often 6 months up to 3 years during which time, you’d be paying substantial interest payments before you even begin paying off the loan.
- Shopping around for the right bad credit mortgage lender means getting one with the shortest possible pre-payment period. In general, the shorter the term payment, the shorter the pre-payment period so you can pay off the loan without incurring the penalties.
We can help you engage the services of a bad credit mortgage broker if you can’t find a good one. They can assess your current financial situation and their expertise and knowledge of the subprime industry can get you the right mortgage product. Contact us now!
Not everyone enjoy a good credit standing to benefit from prime housing loans. But no matter how your FICO score stands, no one should be deprived to get a mortgage loan. You can still get what is called a bad credit mortgage with some conditions the borrower will have to live with.