Bad Credit Home Loans
Typically, when this situation is reached, a full analysis has been done on the mortgage loan package in order to determine the best approach for you. Identifying who is and is not a Sub Prime candidate is difficult at best in some "marginal" situations.
We will be able to review this information from a combination of your credit application, credit report, client consultation and subsequent documentation type. You will then be given the best available program options based upon your picture and together we can create a plan for your future that makes sense.
If we do approach you with a sub-prime scenario, you may probably be confused. If we tell you that your rate may be above 10% with a couple of points, you most certainly may think we are attempting to take advantage of you.
The reality is, some scenarios simply leave no alternative. While we can give you credit counseling to assist you in preparing for a low interest loan, if you must purchase now, and cannot wait until your credit and income are ready, we may have no options.
How could someone honestly expect you to consider paying an interest rate above the 30-year fixed rates advertised in the papers? Many homeowners have asked for the answer to this question over the past several years, and made clear their displeasure with the loan specialist or broker.
More recently, we have seen a major push for RESPA reform nationally through legislation. Some states, burrows, counties and cities that have implemented these reforms through legislation outside of HUD, have experienced a dramatic impact in the number of people now unable to buy or refinance a home who just 18 months ago, could have.
While we believe RESPA reform is needed to control predatory lending practices by unethical brokers and lenders, we should also recognize that any reform must take into account the economic impact on banking as a whole and the direct impact it has on the sub-prime borrowers ability to achieve financing.
We believe HUD recognizes the benefits of these products and is still searching for a balanced solution that protects both the Banking Industry and the borrowers ability to get financed. We strongly discourage reform through local legislation in this matter.
It is important for sub-prime borrowers to recognize the value of the opportunities this product range offers. Prior to 1990 it was almost impossible for borrowers to obtain a mortgage if they did not qualify for either a conventional or government loan. The non-conforming (sub-prime) lending market was developed to assist borrowers who fell into a higher risk category and needed a residential mortgage loan.
Many borrowers are good people who honestly intended or intend to pay their bills on time. A previously unforgiving bank now has the latitude to take into consideration events outside the borrowers control. The human touch has been added into the mortgage loan industry; but not without a price.
Consumers need to understand that investors get compensated for risk in the form of interest rates. The lower the risk, the lower the rate and vice versa. Therefore, there are several risk factors taken into consideration when evaluating a borrower for a mortgage loan in the sub-prime market. Obviously, the first thing we look at, is how you have managed to pay your bills and managed your credit in the past 2 to 5 years.
Late payments that are 30 days are generally considered minor problems however 60, 90 and 120-day late payments can make you a "C" credit risk from the start. Credit scores below 620 even with a good credit repayment history can also place you into a higher risk category as will bankruptcy and foreclosures.
Other factors that are taken into consideration with a Sub-Prime home loan are your debt to income levels (usually anything over 41% of your gross monthly income will place you into a sub-prime home loan with almost all lenders), employment history if less than 2 years, type of property, lack of assets, basically anything that falls outside of conventional or government lending guidelines.
So why consider a sub prime loan? For several reasons. In a purchase transaction most borrowers can get into the home they want at today's price. Once in the home a borrower now has an opportunity to clean up their credit, reestablish new credit and ultimately refinance into a lower rate at a later time.
If you already have a mortgage, a refinance to cash out equity to pay down higher rate credit cards, bankruptcy's, foreclosures, collections and liens is a great way to clean up a troubled credit history, save money each month and get back on your feet. Using this method, typically, with prompt credit repair action and 12 months of on time mortgage payments, you can refinance into a conventional interest rate FHA loan.
Remember these loans are typically for the short term, approximately 2-4 years, and are not recommended as "loans for life". Most borrowers will refinance out after 2 to 4 years, hence the high cost, as a lender assumes substantial risk, for what is projected a very short period of time, with higher than typical defaults, at conventional loan to values.
