Consumers And Bad Credit Mortgage Loans
Bad credit mortgage loans allow consumers who have made mistakes in the past to get the needed funding for purchasing a home. Today, unpaid library fines, overdue utility bills, late payments, repossessions and bankruptcies are all reported to the agencies that keep track of this information and make reports to potential lenders.
Bad Credit Mortgage Loans And Your FICO Score
FICO reports and scores are used in determining the risk of a consumer defaulting on a loan. If the risk is too great for prime mortgages the borrower must seek a subprime loan. In general, the consumer will pay more to borrow the money. Down payment and FICO score are the two primary factors that determine what borrowers actually pay in interest on the loan.
The subprime loan is more likely to include a balloon payment or a penalty if borrowers prepay. Balloon payments mean that after paying a certain number of months, the borrower must pay the balance of the loan in full. Prepayment penalties are charged if the loan is paid off before the end of its written term.
Lenders use FICO scores to determine a consumer's creditworthiness. These scores are calculated with complex algorithms that take many factors into consideration. While this system dates back to the 1950s, it only saw widespread use beginning two decades ago. The scores range from 300-900, with higher scores being better.
Most consumers with scores above 650 have little difficulty in qualifying for a prime rate loan. This will give them the best interest rates available. If scores are between 650 and 620, creditors will look to see what has caused the drop. If the score is below 620, the lender will take a hard look before offering the home loan or the consumer may move to the subprime market.
Many factors affect FICO scores and can cause them to drop. A couple of 30 day late payments or a single 60 day late payment may cause the fall. Bankruptcies, foreclosures or charge offs within the last 24 months are also detrimental and lead to a lower overall FICO score.
Even though consumers have made mistakes in the past and they are reflected in the FICO score or report, it is still often possible to use Bad credit mortgage loans to finance a home. Consumers will want to have a good down payment and make sure their debt to income ratio remains low when applying for the loan. While interest is more for these mortgages, there are many benefits of home ownership.
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