What Can I Expect On A Home Loan For People With Bad Credit?
You will find the availability of such products quite sparse, the interest rate will be high and the Loan To Value (LTV) will be low.
The Bad News
Most companies offering home loans have long abandoned their sub prime or bad credit loan divisions. Even FHA loans, long the boon for people with less than perfect credit, are seeking people with mid fico scores at or above the six-hundred range. Bad credit loans are considered those loans below that number.
The Good News
There remain a few companies and programs which cater to the bad credit clientele. Ask you broker or banker if he or she can access those loans. If not, look elsewhere. The companies do exist.
Interest rates
Currently people are signing loans with the interest rate on a conventional thirty year loan around five percent or lower. A bad credit loan will be eight percent or higher. But remember, eight percent loans were the standard just a few years ago for the best customer, so it is really not that bad.
Loan to value
The loan to value is the percentage of the appraised value of your residence on which the lender is willing to loan. With bad credit this can be as low as sixty-five percent. So if you have bad credit and are looking for a loan, make sure you have some equity. There are several web sites which will give you a rough estimate of the value of your home. Also, if you know what the area homes have been selling for, you can pretty much gauge for yourself an amount using that information.
What to do
Get your documents ready before you go looking for a loan. Have your last two years W-2s handy and a reasonable explanation of why your have bad credit. Just not wanting to pay bills on-time is probably not a good answer to that question. Look hard. You can probably find a lender willing to extend a loan to you, even with bad credit.
*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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