When purchasing a home, selecting the appropriate mortgage can make all the difference. Not only will it help build equity in your property but it could save thousands in interest costs in the long run.
Obtaining a Mortgage With Bad Credit: Your Options
Just because your credit score is low doesn’t guarantee approval for a mortgage – many lenders are willing to offer loans even to those with less-than-perfect ratings. It just may take some research and some time to locate the most suitable lender for you.
Start by considering your budget and how much you can comfortably spend each month. Furthermore, decide if you want a short-term or long-term fixed rate mortgage.
A shorter-term fixed rate mortgage (such as 15 or 20 years) could help you save time and money on interest payments, allowing you to build equity faster and move into your dream home sooner. On the other hand, a longer-term loan may reduce monthly repayments and improve cash flow.
Government Insured Loans
People with bad credit can access several government-backed mortgages. Popular options include VA, FHA and USDA loans – each offering its own features and advantages.
Conventional Loans
Conventional mortgages are the most popular home loan type due to their predictable interest rate and payment over its life. While they usually come with lower down-payment requirements than government-backed loans, they may be harder to qualify for due to higher credit-score requirements.
Some government-backed mortgages may be an advantageous choice for home buyers with poor credit who need a loan that’s easier to qualify for. These include VA and FHA loans, which have lower credit-score requirements than conventional mortgages but require larger down payments.
ARMs
People with poor credit may consider an adjustable-rate mortgage (ARM). These have a fixed interest rate for the first few years, then switch to a variable rate that changes based on market conditions. They are ideal options for those planning on selling their home within several years or refinancing soon.
If you’re uncertain which mortgage is ideal for you, take the time to shop around and compare different terms, rates and fees. This can easily be done by visiting the websites of several mortgage lenders.
No Down Payment Mortgages
Purchasing a home can be an expensive endeavor, so it’s essential to select a mortgage that fits within your budget and financial objectives. Some mortgages don’t require a down payment, making them cheaper than traditional loans since they don’t include extra expenses like private mortgage insurance.
Other mortgages allow for down payments as low as 3%. These can be ideal for first-time homeowners, helping them build equity quickly and bypassing the high cost of mortgage insurance.
