With today’s low mortgage rate environment, most ‘prime’ clients are taking advantage of rates around low 2.0%. These rates are available for people who have good credit, these are usually for people that have credit scores above 680. What if you have had credit issues in the past and still rebuilding your credit?
If you have BAD CREDIT and you are looking to purchase or refinance your MORTGAGE, you can still take advantage of these lower rates available through alternative mortgage lenders. At the time of this article, rates are starting around 3.24%. Please keep in mind pre-COVID, prime lending rates were in the 3.0-4.0% range.
3 FACTORS TO QUALIFY FOR A BAD CREDIT MORTGAGE
- 20% DOWN PAYMENT or *EQUITY – The main criteria to qualify for a BAD CREDIT MORTGAGE is equity. For a new purchases you will need a minimum of 20% Down Payment and for a refinance you need to have a minimum of 20% equity built up in your home.
- PROPERTY LOCATION – Most alternative mortgage lenders only lend on major cities due to marketability concerns.
- INCOME – To qualify for this lower rate despite having bad credit, you would still need to be able to show ability to pay the monthly mortgage payment through stable income sources. Although alternative mortgages have a bit more flexibility in income qualification than that of prime mortgages. Please keep in mind this type of mortgage is different from a private mortgage in which you get approval solely on the amount of equity you have.
*EQUITY = (1 – (CURRENT MORTGAGE / MARKET VALUE)) * 100
ARE BAD CREDIT MORTGAGES EXPENSIVE?
If you are already a homeowner and you are looking to refinance, chances are you have other debts with high interest rates. Typical unsecured loans or lines of credit are around 6.0-8.0%. Credit cards are around 19%. Or you may have a second mortgage at 10-12%. If this is the case, you will be saving a lot of money on interest by doing this refinance despite the cost.
If you are looking to purchase, keep in mind that owning a home will be your biggest investment. In the last decade real estate has increased on average 6-8%. Even if we calculate a $500K home at the lower 6% annual increase, that is an increase of about $30K a year. So even if it costs you a bit more to get a bad credit mortgage, it is allowing you to invest in the market TODAY and start making a good return on your money!
Fees to consider:
- Lender Fee – The typical fee for an alternative mortgage is 1.0%
- Broker Fee – Depending on the brokerage this can range from 0.5% – 1.0%, at Mortgage Wars we currently have a flat fee promotion of $1500.00, regardless of the mortgage amount.
- ClosingCosts – This will be the same regardless of a ‘prime’ mortgage or a bad credit mortgage.
Purchases: Account for about 1.50% of the purchase price to cover legal fees, land transfer taxes and other costs associated with purchases
Refinances: Account for about $1000.00 for legal fees.
4. Appraisal Fee – This is approximately $400.00
If you have any questions regarding how to qualify for a MORTGAGE when you have BAD CREDIT, please email us at [email protected] or call 416-907-2090. We would be happy to assist you!