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.
MORE RESOURCES updated Thu. April / 25 / 2024 Only Half Of Black Seniors Approved For Home Repair Or Refinance Loans To Age In Place Block Club Chicago Mortgage Interest Rates Today, April 24, 2024 | Rates Still Slated to Go Down This Year Business Insider 10-year refinance rates: What to know about the current market CNN Underscored Should You Refinance Halfway Through Your Mortgage? Bankrate.com How to Refinance Your Mortgage NerdWallet Loan Modification Vs. Refinance Bankrate.com 30-Year Mortgage Refinance Rates Business Insider 15-Year Mortgage Refinance Rates: Compare Current Rates Business Insider Mortgage Interest Rates Today, April 22, 2024 | The Still-Hot Economy is Keeping Rates High Business Insider Mortgage Interest Rates Today, April 21, 2024 | Rates Remain Near 7% Business Insider Average Mortgage Interest Rates: Mortgage Rates by Credit Score, Year, and Loan Type Business Insider How To Get The Best Refinance Rate Bankrate.com The best mortgage lenders for refinancing in April 2024 CNN Underscored MBA: Mortgage Applications Decreased in Weekly Survey Calculated Risk Will Interest Rates Go Down in May 2024? | Mortgage Rates Forecast The Mortgage Reports How To Choose The Right Kind Of Refinance For You Bankrate.com Mortgage Rates This Week NerdWallet Mortgage Interest Rates Today, April 19, 2024 | High Rates Make for a Challenging Homebuying Season Business Insider Should You Refinance Your Mortgage In 2024? Bankrate.com Best Mortgage Refinance Lenders In 2024 Bankrate.com Current mortgage refinance rates CNN Underscored Best Refinance Lenders of April 2024: Refinance Your Mortgage The Motley Fool When to Consider Refinancing Your Mortgage Business Insider How To Refinance A Rental House Bankrate.com Mortgage Interest Rates Today, April 20, 2024 | Rates Remain Elevated, but They Could Fall Later This Year Business Insider Mortgage Rates Chart | Historical and Current Rate Trends The Mortgage Reports Best Mortgage Refinance Lenders of April 2024 Business Insider Refinance Requirements: What You Need to Refinance Your Home in 2024 The Mortgage Reports How Soon Can You Refinance a Mortgage? NerdWallet Refinancing a Home Equity Loan (2024 Guide) MarketWatch Conventional Refinance Rates and Guidelines for 2024 The Mortgage Reports Mortgage Rate Forecast February 2024 Bankrate.com How To Refinance An Underwater Mortgage Bankrate.com 30-year refinance rates: What to know CNN Underscored Mortgage Rate History: 1970s to 2023 Bankrate.com Current 15-year refinance rates — and lenders that offer them CNN Underscored When should I refinance my mortgage? To determine if a refinance is the right move for you, you’ll need to know the ... The Wall Street Journal Pros and Cons of a Cash-Out Refinance Bankrate.com What Credit Score Do I Need To Refinance? Bankrate.com Should I Refinance My Mortgage Now? When to Refinance As Rates Drop Business Insider Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023 Consumer Financial Protection Bureau The Sales Pitch for an 8% Mortgage: Buy Now, Refinance Later—for Free The Wall Street Journal
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