Bad credit mortgages lenders cater to homeowners with poor credit ratings and are often referred to as “sub-prime” mortgage lenders. Sub-prime lenders work with borrowers that traditional mortgage lenders will not. Before you apply for a bad credit mortgage there are several things you need to know to protect yourself.
The bad credit mortgage industry has grown from a small cottage industry to a significant part of the mortgage economy. One in four Americans today has poor credit for one reason or another. These borrowers do not qualify for traditional mortgage loans and have to pay higher interest rates and fees to qualify with a sub-prime mortgage lender.
Interest rates vary significantly from one lender to the next, especially with bad credit lenders. It is important to shop from a variety of lenders and mortgage brokers that specialize in bad credit loans; by doing so you will know what fair interest rates, terms, and fees are for a borrower in your financial situation. When you comparison shop correctly it is easy to spot mortgage lenders that are out to take advantage of borrowers with poor credit.
An important aspect of your new mortgage is that it must not have a prepayment penalty. Your goal for taking out a sub-prime mortgage should be to rebuild your credit. After you have 24 months of on-time payments under your belt you will have sufficient credit to refinance with a traditional mortgage lender for more competitive rates and terms. Choosing a mortgage with a prepayment penalty could cost you a significant amount of cash when you’re ready to refinance.
Beware mortgage lenders that encourage you to exaggerate your income or the state of your credit. If the lender ask you to sign blank or incomplete documents it is a sure sign of a dishonest mortgage lender. Predatory mortgage lenders try and structure their loans to make it impossible for you to repay. When you fall behind on the payments they will foreclose and take your home. You can learn more about your mortgage options and avoiding predatory mortgage lenders by registering for our free mortgage guidebook.