Finding A Bad Credit Home Loan

What's a bad credit home loan? It's a loan for people with bad, ugly credit. It's a fact that some lenders are less interested in giving loans to people with bad credit. They may charge high rates and fees to discourage applicants.

But other lenders are willing to take a chance on you. You may have to pay more for the priviledge, but that's business. If you want to escape your bad credit past, the best way is to purchase a home and make rock solid payments. The place to begin is with a bad credit home loan, where you fall into a "high risk" category.

How to Get Started
First, know your credit situation.

To learn your credit "score" you may have to pay a small fee, but it's worth knowing. Your score determines everything from the interest rate to the loan terms.

Next, begin gathering quotes from a variety of lenders. The easiest way is to do this over the Internet. At SPENDonLIFE.com you enter your information once, and then you can get multiple loan quotes from reputable companies. Each one will you give you different offers. Be sure to ask each lender the specifics of each offer. Don't be afraid to mention that you have received other offers and are considering those as well.

Beware of Low Introductory Rates
This is a potential trap if you have bad credit. Sometimes lenders offer a temporarily discounted interest rate -- a rate that is unusually low and lasts only for an introductory period, such as six months. During this time, your monthly payments are lower too. After the introductory period ends, however, your rate (and payments) jacks up to the true market level (the index plus the margin). Ask if the rate you are offered is "discounted," and if so, find out how the rate will be determined at the end of the discount period and how much larger your payments could be at that time.

Home Equity Loans for Bad Credit
Some folks looking for a bad credit home loan might also want information about home equity loan rates. This is only if you already own a home. Interest rates for loans differ, so it pays to check with several lenders for the lowest rate.

Compare the annual percentage rate (APR), which indicates the cost of credit on a yearly basis.

Be aware that the advertised APR for home equity credit lines is based on interest alone. For a true comparison of credit costs, compare other charges like points and closing costs, which will add to the cost of your home equity loan. This is important if you are comparing a home equity credit line with a traditional installment (or second) mortgage, where the APR includes the total credit costs for the loan.

Ask about the type of interest rates available for the home equity plan. Most home equity credit lines have variable interest. These rates may offer lower monthly payments at first, but during the rest of the repayment time the payments may be higher. Fixed interest rates (which never change) may be slightly higher initially than variable rates, but offer stable monthly payments over the life of the credit line.

If you are considering a variable rate, compare the terms. Check the "periodic cap," which is the limit on interest rate changes at one time. Also, check the "lifetime cap," which is the limit on interest rate changes throughout the loan term. Ask the lender which "index" is used and how much and how often it can change. An index (like the prime rate) is used by lenders to determine how much to raise or lower interest rates. Also, check the "margin," which is an amount added to the index that determines the interest you are charged. Plus inquire whether you can convert your variable rate loan to a fixed rate at some future time.