Debtors unable to qualify for conventional home loans might want to consider mortgage loans for bad credit. Although bad credit loans are more expensive than home loans obtained through mortgage lenders or credit unions, they can help borrowers buy a home while establishing or rebuilding credit.
Mortgage loans for bad credit are assessed with a higher interest rate. However, the rate of interest depends on the borrower’s FICO score. Applicants with a FICO score between 500 and 600 are generally charged a higher interest rate than those with a score between 600 and 720. While each of these scores is considered risky, borrowers with a score of 650 are considered a lesser risk than those whose score falls below 600.
While bad credit loans are more costly than a conventional home mortgage, they can help borrowers boost FICO scores while clearing negative credit. Borrowers can improve FICO scores by making home loan payments on time and in full each month. Once FICO scores are above 720, borrowers can refinance mortgages through a conventional lender to obtain a reduced rate of interest and lower monthly payment amounts.
One home buying option for individuals with poor credit is Home Path Mortgage. This government sponsored program is offered through Fannie Mae and allows borrowers to select from bank owned foreclosure homes located across the nation.
Home Path Mortgage includes financing options for borrowers with poor credit. In addition to offering bank owned homes at discounted rates, Home Path has a low down payment requirement and allows borrowers to make use of down payment assistance.
Down payment requirements for conventional home loans generally fall between 10- and 20-percent of the purchase price. With Home Path financing, borrowers are only required to provide a 3-percent down payment. Additionally, borrowers can apply for Neighborhood Stabilization Program grant funds through the Department of Housing and Urban Development. HUD allows borrowers to use NSP grants as down payment funds.
Borrowers with bad credit who need to refinance home loans should investigate available options of Obama’s Making Home Affordable program. In order to qualify for this government sponsored program, borrowers must be current on home loan payments and not have been more than 30 days past due on loan payments within the previous twelve months.
Making Home Affordable Refinance Program (HARP) expires on June 10, 2010. However, new programs will soon be implemented to help borrowers save their home from foreclosure or enter into foreclosure alternatives such as deed in lieu or short sale transactions.
Individuals who have filed personal bankruptcy or entered into foreclosure within the previous two years often find it increasingly difficult to obtain home loan financing. One option to consider is obtaining a hard money real estate loan through investment groups or private real estate investors.
Hard money loans are intended for short term financing and borrowers should strive to refinance into a conventional loan within a year or two. Investors often require down payments of up to 50-percent and assess interest rates of 18- to 25-percent.