Applying and getting approved for home loans with bad credit is doable.
Unfortunately, those who accept a bad credit loan must be willing to
pay slightly higher interest rates. The average mortgage rate is about
6%. If you have excellent credit, it may be possible to get approved for
a home loan around 5%. However, if you have a low credit score, you can
expect rates as high as 9%.
Understanding the Importance of Credit
Using credit unwisely can greatly hinder any efforts to obtain a low
rate on home loans, auto loans, credit cards, etc. For this matter, many
people strive to improve their credit rating. Credit ratings can affect
home loan approvals. Although it is possible to get approved for a
mortgage with poor credit, rarely do lenders offer home loans to persons
with credit scores below 500.
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Additionally, a few traditional mortgage lenders have strict lending
guidelines. Some only offer prime rates to those with credit scores above
680, whereas others reserve prime rates for those with scores above
720. Thus, if you are hoping to secure a low rate mortgage, it is
important to maintain a high credit rating.
Benefits of a Bad Credit Mortgage Loan
Bad credit mortgage loans are offered by sub prime lenders. These loans
are intended specifically to help individuals with poor credit obtain a
home loan. While bad credit loans are helpful, there are certain
disadvantages.
For starters, individuals with a low credit score will pay higher
rates. Higher mortgage interest rates will increase total mortgage payments.
In some cases, high rates may decrease how much you can afford to pay
for a home.
Nonetheless, bad credit mortgages are ideal for rebuilding credit and
improving credit rating. After paying on a mortgage for several months,
your credit score will begin to gradually increase. In time, you may be
able to obtain other credit accounts at a reasonable rate. Furthermore,
once your credit improves, you will have the option of refinancing the
home loan for a better rate.
Applying for a Bad Credit Mortgage Loan
When applying for a bad credit mortgage loan, research online mortgage
lenders. These lenders offer easy online applications and quick
approvals. Moreover, online mortgage mortgages afford easy loan comparisons.
After receiving a loan request form, brokers will provide multiple
offers from a range of lenders.
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