Many people make the assumption that since they have less than perfect credit, they are barred form owning their own home. They are under the impression that no one will trust them with a mortgage; while this may have once been the case, the rules have loosened up somewhat in the last several years. Rather than eschewing providing mortgages to people with a poor credit rating as they were traditionally speaking to doing, banks and other mortgage providers have instead come up with mortgage products which are great for people with bad credit. These bad credit mortgage loans can help families who otherwise would be unable to buy a home.
You could have ended up with a bad credit rating for any number of reasons. You may have overextended yourself financially with a credit card, had emergency medical expenses which you were unable to repay or a variety of other reasons. However it happened, you can still qualify for bad credit mortgage loans. There are some very important differences between these bad credit mortgage loans and an ordinary mortgage loan, however.
Most noticeable is the difference in interest rate between a traditional mortgage loan and bad credit mortgage loans. While people who have a good credit history can get loans with an interest rate ranging between 5-7%, your interest rate will be significantly higher if your credit history is a poor one. The bank does this as a way of protecting themselves from the risk of default. You should shop around to find the lowest possible interest rate. This can take a while, but will pay for itself in the savings you will see.
You should be mindful of the down payment percentage when shopping around for bad credit mortgage loans. This is a small percentage of the total payment, usually around 5% – this may be higher with some bad credit mortgage loans however, this is something else to keep in mind as you look around.
The monthly mortgage payments can be higher with these loans. You can reduce this by choosing a 30 year mortgage rather than a15 year one. For example, if you buy a home which costs $ 150,000, you will pay about $ 800 per month on a 15 year mortgage, as opposed to a little over $ 400 on a 30 year mortgage. This amount, it should be noted, does not include interest.