Understanding Bad Credit Mortgages / Home loans

What is a bad credit loan and who is typically suited for one?

Bad credit means you end up paying more when you borrow money. The market today is extremely conducive to bad credit mortgages where sub prime lenders are providing first mortgages, second mortgages and home equity loans to those people who do not qualify for conventional financing. The number of higher interest home mortgage loans to consumers with non-existent credit histories has been spiralling in the recent past.

Sub prime borrowers are people with a FICO score of 620 or lower, blemished credit histories, having the stigma of a bankruptcy in the last 60 months, debt-to-income ration of 50% or higher, a foreclosure or charge-off in the past two years and repeated delinquencies. Others who qualify for a bad credit mortgage are minorities, recent immigrants, first time homebuyers and older female borrowers. The home mortgage loans carry a higher rate of interest than prime loans to compensate for the increased credit risk.

Before the introduction of sub prime or bad credit mortgage loans, many of the deserving yet poor people with insufficient credit histories were unable to get a mortgage. These people are now able to own their own homes because of the initiation of sub prime loans.

Bad credit mortgage is appropriate when you do not want to refinance your first mortgage yet want home equity for purposes like home improvement, medical or college fees, debt consolidation etc.

Besides getting relief from high mortgage and interest payment, bad credit mortgages give you much more:

• They give you the opportunity to clean up your credit as well as the leverage you need to avoid bankruptcy
• Debt consolidation and low monthly payments with bad credit home loans
• Allows you to live your life without worrying about hassling creditors and counting every penny
• Bad credit mortgages give you extra cash for home improvements, child support, late payments etc.

However, it is essential for the borrower going for the sub prime loan to be wary of dishonest sub prime lenders who may try to cheat the borrowers with easy but expensive credit. Some experts believe that at least 50% of the people who get sub prime financing could actually qualify for conventional financing at a lower interest rate. What they need to do is shop aggressively and conduct some serious research before deciding on a mortgage.