![]() |
Poor Credit? Get a Sub-Prime Mortgage Now, and Refinance to a Conventional Mortgage LaterThere are great mortgage loans for people with poor credit, and yes, you can still save thousands of dollars. In order to receive preferential treatment for mortgage professionals, you'll need a credit score of 680 or better (this is considered A credit). If you have a score that is less than 600, you'll fall into a sub-prime loan category. Now, you'll need to get creative, in order to get your mortgage and not lose a fortune. A sub prime lender will offer you virtually any type of loan that a conventional lender will offer, but you'll pay a much higher interest rate, as a risk premium. In other words, these lenders consider people with low credit scores risky borrowers, because they may have some poor payment history. Lenders like people who pay all their bills on time, even though it is not at all uncommon for people to occasionally miss a payment for one reason or another. So, the sub prime, or non-conforming, or niche, lender says, "We'll take the risk, but we want to make a lot more money, in order to do it." Don't worry. You can get it done, and improve your situation to refinance at a better rate later. Let's assume you have poor credit, and you want to purchase a house for $100,000. You also have only five percent to put toward a down payment. You bring a twofold problem to the lender - poor credit and a very high loan-to-value, or LTV. You need to borrow $95,000 on a $100,000 home, so your LTV is 95%. As a general rule, lenders like purchasers to bring 10 to 20 percent of their own money to the table, again lowering the risk for the lender; they feel that the more money a borrower has in a deal, the less likely she is to default. So, your mortgage professional will find his best sub-prime lender, and take your application to him. Now, if your debt-to-income ratio (amount you owe monthly vs. gross income monthly) is 50% or less, and your credit score is above 500, you'll likely get your $95,000 loan. Your interest rate, however, will be between 10% and 12%, creating a very large monthly mortgage payment. So, how are you going to win the mortgage game, in this case? You have two options. First, you can improve the loan by reducing the LTV. In other words, instead of taking a loan at 95% loan-to-value, you apply for a first mortgage of $80,000 (80% LTV) and a second mortgage of $15,000 (15% LTV). Here's how you save money. Instead of borrowing $95,000 at, let's say, 12%, with a payment of $977, not including taxes and insurance, you have a loan for $80,000 at 8.75%, for a payment of $629. Your second mortgage is at 13%, with a monthly payment of $166. Now, your combined monthly mortgage payments with two loans are $795, saving you $182 monthly over the first mortgage at 12% and $2,184 each year. The second option is to take an adjustable rate mortgage, which offers great savings, just like conventional loans. If you take a 2-year ARM, which sub prime lenders offer, you might be able to get a rate of 7% or 8%, instead of the 10% you'd likely get on a 30-year fixed loan. You might also talk to your mortgage professional about combining option one and two, and taking an ARM on your first mortgage at 80% LTV and still taking a second mortgage for $15,000. This could save you even more. Get a free mortgage course to learn more. Mark Barnes is an investment real estate and real estate finance expert. Get his free mortgage finance course at http://www.winningthemortgagegame.com. Mark is also the author of the new novel, The League, a shocking, sports-related conspiracy. Learn more about his suspense thriller at http://www.sportsnovels.com.
CFPB Mortgage Report Finds Jumps in Closing Costs and Denials ... Consumer Financial Protection Bureau Buy Now, Refi Later? 84% of Recent Homebuyers Are Banking on It U.S News & World Report Money How to lower your mortgage payment Yahoo Finance What's the cost of refinancing a mortgage? Mortgage Professional Can You Roll Closing Costs Into Your Mortgage? GOBankingRates VA loan refinance: What is it and how does it work? Yahoo Finance Justice Department Secures $9 Million Agreement with Washington ... Department of Justice What is a good student loan interest rate? Yahoo Finance What to Do If Your Adjustable-Rate Mortgage Is About to Adjust Higher The Truth About Mortgage 3 Signs You Can Afford a Home Now That Interest Rate Hikes Have ... Business Insider The Great Pandemic Mortgage Refinance Boom - Liberty Street ... Liberty Street Economics - Refinancing your mortgage could save you thousands — here are some of the best refinance lenders CNBC Today's 30-Year Mortgage Refinance Rates | U.S. News U.S News & World Report Money 11 Home Refinance Loans For Bad Credit (Sep. 2023) BadCredit.org Should You Refinance Your Home Loan? Credible Current mortgage refinance rates in 2023 USA TODAY Compare Today's Refinance Rates | U.S. News U.S News & World Report Money Should I Refinance My Mortgage? - Buy Side from WSJ The Wall Street Journal Here’s how sharply mortgage refinancing has dropped off Yahoo Finance 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider 30-Year Refinance Rates: Compare Current Mortgage Rates Business Insider Mortgage Rate Forecast: When Will Rates Go Down? U.S News & World Report Money Mortgage and refinance rates today, Jul. 3, 2023 The Mortgage Reports Mortgage Refinance Rates SFGATE Should you refinance your mortgage to pay off debt? New York Post Why Older People Can’t Get New Mortgages The New York Times What Credit Score Is Needed To Refinance a House | Chase Chase News & Stories What Happens After You Refinance a Car Loan? Investopedia Should I refinance my student loans? MarketWatch How to Refinance Student Loans in 5 Easy Steps LendingTree How to Refinance a Car Loan in 2023 Investopedia How to Tap the Value of Your Home—Safely Consumer Reports CFPB Launches Effort to Spur New Opportunities for Homeowners ... Consumer Financial Protection Bureau Rocket Mortgage review 2023 USA TODAY VA Refinance Rates - Current VA Loan Refinance Rates Today Business Insider
|