How Can I Reduce Bad Credit Mortgage Closing Costs?

How can I reduce bad credit mortgage closing costs? Read here for tips on saving money on closing costs.

Due to low interest rates and low housing prices, now may be the best time to purchase a home and take out a mortgage. For many people with bad credit, mortgage closing costs are very expensive and can make purchasing a home unaffordable. Luckily, there are several ways to reduce bad credit mortgage closing costs.

Put More Money Down

The first way to reduce bad credit mortgage closing costs is to put more money down. Many lenders charge additional closing costs in the form of “points” if a borrower puts down less than 20%. These points are often as much as 1% of the mortgage balance. If you are able to do so, putting forth a larger down payment could significantly reduce your total bad credit mortgage closing costs and save you thousands of dollars.

Accept a Higher Interest Rate

Another way to reduce bad credit mortgage closing costs is to accept a higher interest rate. Often times, a mortgage lender will advertise mortgage rates which only apply to those borrowers with favorable credit scores. Borrowers with poor credit scores will often have to pay points of 1% to 2% of the mortgage loan balance in order to get the lowest interest rates. If the borrower is willing to accept a higher rate, they will avoid paying extra points.

Purchase the Right Home

The last to reduce bad credit mortgage closing costs is to purchase the right type of home. Many bad credit mortgage lenders consider new condo developments to be much riskier investments than single family homes. Because of this, mortgage lenders often charge extra mortgage points and closing costs to borrowers who are looking to purchase a new construction condominium. By purchasing a single family home, a borrower could save significantly on closing costs.

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