Bad Credit Home Loans Do Exist

Bad credit home loans do exist. The myth that only people with excellent credit can get home loans is exactly that, a myth. Loans are given to people with all types of credit. The better your credit the better interest rate you will receive on your loans, but that doesn't mean that bad credit home loans are not made available to people with undesirable credit.

There is some basic information you should know about financing and home loans.

Appraisal

Before a lender agrees to issue home loans they must be sure the value property is worth enough to cover the loan balance should you not be able to make the payments. An appraiser will often be sent to the property to assess its value

Down Payment

For first-time Points:
A point is 1% of the total amount of a home loan. Let's say you're buying a house for $125,000 and put 20% ($25,000) down. You'll be financing the remaining $100,000. If 2 points are charged on the home loan, $2000 must be paid to the lender. Sometimes the cost is divided between the seller and buyer, by contractual agreement.

Interest Rates and Term

You'll see some differences in interest rates charged by lenders on bad credit home loans, but all rates tend to rise and fall, sometimes very quickly, based on what's happening with the U.S. and global economies. If you're shopping rates, be sure to notice how many points are being charged. You may see one lender offering a low rate and more points, which means you'll pay more out of pocket initially but have lower payments through the life of the loan. Another lender may have a higher interest rate, making for higher monthly payments, yet fewer points, which will cut your immediate expenditures.

Fixed Rate Bad Credit Home Loans

If you want to lock in a specific interest rate and have the predictability of a monthly principal-and-interest payment that will never change throughout the term of the loan. Terms Available: The term is how many months or years it will take to pay off the loan completely. The standard term for fixed rate mortgages is 360 months or 30 years. Terms of 15 years and 10 years are also widely available.

Adjustable Rate Mortgages

This type of loan was created to make it easier to handle the payments in the early years of the loan. It begins with an attractively low interest rate, so the monthly payment is lower than it would be with a fixed rate loan. Then, at specified times, the interest rate will shift up or down, depending on market conditions at the time. Prearranged interest rate caps keep the rate from changing too often or by too much.

FHA Loans

The down payment is the tough part because it's typically a relatively large sum of money that you have to bring to the table at settlement.

Mortgage Insurance

To protect a lender's investment against default, most lenders will usually require that you purchase some kind of mortgage insurance if your down payment is less than 20% of the mortgage loan. The premium will be included in your monthly mortgage payments.

FHA loans feature lower down payments, made possible by government-backed insurance. Guidelines for acceptable credit ratings and the source of your down payment are also more flexible with FHA loans.

Construction/Permanent Loans

For those who choose to build a home rather than buy one construction/permanent loans. During the 6 to 9 month construction phase, draws are paid out as the work progresses, based on the percentage of completion. Then, when the house is completed, the loan converts into a traditional mortgage loan without the inconvenience or expense of going through another settlement.