What to Expect With A Bad Credit Mortgage

Most mortgages now require at least a 620 credit score

Bad credit mortgage are often referred to as sub-prime or non-conforming home loans. Once you drop below a credit score of 620 you can expect to get one of these types of mortgages. Be aware there are exceptions that can be made to this.

Believe it or not there are several bad credit mortgages available that offer a zero down bad credit mortgage and also allow for cash out refinancing up to 100% of the value of your home. Most sub-prime lenders will go as low as a 580 credit score and still do 100% financing. A few will go as low as a 570. And a select few will go as low as 560. 

You can get a copy of your credit report by clicking here.

Once you drop below the 560 credit you will need to start coming up with a down payment. The lower your score the more down you will need to come up with. If you are refinancing. The lower your credit score the less cash you will be able to get out of your hoe.

For example if you had a 500 credit score you may need a 20% down payment. Or you can only get cash out up to 80% of the value of your home if you are refinancing.

The lowest score you can have and still get financing is a 475 credit score. You will need to come up with a 30% to 40% down payment or leave that much equity in your home when your refinance.

With a bad credit mortgage you can expect interest rates anywhere from 1% to 5% higher than the lowest 30 year fixed interest rate.

To get low interest rates with a bad credit mortgage you will normally need to take the Adjustable Rate Mortgage option. Then plan to refinance after your credit scores have risen. If you choose the 30 year fixed option plan on paying an interest rate 2% to 4% higher than if you chose the ARM option.

One big thing to be aware of is that most of these types of mortgages have a pre-payment penalty. The penalty can range from 1 to 5 years. The penalties can have a wide range but most charge 6% of the loan as the penalty. There are some states that do not allow pre-payment penalties.

You also have the option of buying out the penalty. Plan on paying 1 percent of the loan for every year you are planning on getting rid of.

If your bad credit is due to mortgage late payments don’t worry. There are many lenders that will allow for unlimited 30 day late payments, up to three 60 day late payments, and up to one 90 day late payment. 

If you have credit where there is no hope you may need to take a look at a private money loan. Good luck in your search for a mortgage loan for bad credit.