A bad credit score of 540 or lower means you are in the poor credit score range. It will be hard to get a good interest rate when rates at there best are in the 3% range. I am not saying you cannot get a mortgage loan but there will be higher application fees, closing costs and a higher down payment at the closing perhaps as high as 20%.
How Does It Affect Your Mortgage Rate?
It will affect your mortgage rate to be higher, thus your mortgage home loan payments will be $200-$250 higher per month on a 30 year fixed loan then at the lower rate then they would be at the prime rate.
Make Your Lower Bad Credit Score Higher
You might want to work on lowering your score by paying off some of your credit debt, like your credit cards, bad loans, and doing some credit repair by paying off your auto loan early by taking on a second job for however long it takes to get your score up. It is essential you get your scores up in the 700 range in order to get a good home loan interest rate because remember you will be paying on this for a long time and there is no need to be paying extra with mortgage rate points.
Conclusion
If it is imperative that you get into a home loan mortgage as soon as possible (due to a new bride wanting to have a new home etc.) there is a way to do it and still get some credit repair going. Simply take the hard road, pay the high mortgage rates, pay the 20% down, pay the high closing costs and application fees. Make your payments on time with no late payments or missed payments for a year while still working on paying off your credit debt. After a year of on time payments on all credit debit you should be able to increase your credit score so that you will be able to refinance your home loan mortgage with lower mortgage rates and smaller payments. It will not be easy but a little sacrifice early in life and you will be able to reap the benefits later on.
*Affects pricing. With the No Closing Cost
Option, borrowers finance the closing costs instead of paying for them at
closing. Borrowers who pay closing costs at closing may qualify for a lower
interest rate. Some upfront fees (ex. credit report and appraisal) may apply
and may be credited at closing.
*Refinancing or taking out a home equity loan or line of credit may increase
the total number of monthly payments and the total amount paid when compared to
your current situation.
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