The first situation when a bad credit mortgage is the bet way to go is when your credit score will not improve anytime soon. For people who have poor credit, but can realistically improve their score over the next few years, it may be wise to wait to purchase a home until their credit improves. For people who have declared bankruptcy or have had other judgments, getting a bad credit mortgage makes more sense.
When Renting is More Expensive
Another situation when a bad credit mortgage is the bet way to go is when renting is more expensive than owing a home. In various markets across the country, the average rental rate is more expensive than the average mortgage payment. In these markets, it often makes more sense to accept a mortgage with high fees and interests than pay a high rent. This is because the bad mortgage recipient will be able to receive tax deductions, build equity, and build their credit.
When You Plan to Stay in Your Home
The last situation when a bad credit mortgage is the bet way to go is when you plant to stay in your home for an extended period of times. Bad credit mortgage loans often come with pre-payment penalties which prevent borrowers from paying off a loan early. If the borrower sells their home or refinances their mortgage within 2-3 years of obtaining the mortgage, they will often be charged a period of up to 2% of the outstanding balance.
*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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