
The bad credit mortgage is often called a sub-prime mortgage and is offered to homebuyers with low credit ratings. Due to the low credit rating, conventional mortgages are not offered because the lender sees this as the homebuyer having a larger-than-average risk of not following through with the terms of the loan. Lenders often charger higher interest rates on sub-prime mortgages in order to compensate for the higher loan default risk that they are taking.
The following table displays current conforming rates for people with prime credit scores. If you have a poor credit score you can expect to pay a significantly higher rate of interest on your loan & the loan is more likely to be structured as an adjustable-rate rather than a fixed-rate. The table also offers a credit score filter which allows you to find offers matching your FICO credit range.
Ways Subprime Mortgages Differ
Subprime have interest rates that are higher than prime loans. Lenders must consider many factors in a particular process that is called “risk-based pricing, ” which is when they determine the terms and rates of the mortgage. Sub-prime rates will be higher, but it is the credit score that determines how high. There are also other determining factors like what kinds of delinquencies are recorded on the borrower’s credit report and the amount of the down payment. An example is the fact that the lender views late rent or mortgage payments as being worse than having credit card payments that are late.
In some cases borrowers may take a higher interest second mortgage to help qualify for a lower cost first mortgage.
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The SBA Loan Book: Get A Small Business Loan--even With Poor Credit, Weak Collateral, And No Experience (SBA Loan Book: The Complete Guide to Getting Financial Help) Book (Adams Media)
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