When you are in the market for a poor credit home loan you will find that they are out there. What you will also find, along with all poor credit loans is that they are quite expensive. Where these loans will cost you up front will be mainly in the amount of money that you will have to put as a down payment on the home. Where they will cost you the most in the long run is in the interest rates. A poor credit, or sub-prime loan will have a much higher interest rate than a conventional loan and that can end up costing you thousands to tens of thousands of dollars over the life of your loan. In some loan programs the lender will allow you to buy down your interest rate, but it will not be by much and will add to your closing costs.
Depending on how deeply in debt you are, your money might be better spent in paying off your debt to improve your credit enough to get a conventional loan rather than investing in a loans for people with poor credit. Review your credit reports and see exactly what you have out there that is making your credit rating so low. Then do the math on what a sub-prime loan will cost you. A home loan with poor credit may well turn out to be just too expensive.
For example, let’s say that you are looking at a home for $150,000.00. A sub-prime loan will require a minimum of 25% to 30% down, so for our purposes we will be conservative and say 25%, or in this case $37,500.00. When you figure in what you will pay in closing costs and fees associated with the loan. you are looking at well over $40,000.00 to get your mortgage. If you have that kind of verifiable cash, then you can buy your home. However, if it would take less than $40,000.00 to clean up your outstanding debt and you can wait a few months for it to season and raise your scores, you could qualify for a conventional loan where you may only need to put up to 10% down and get an interest rate that could save you hundreds of dollars every month. Not to mention, your credit rating will be restored.
Perhaps you owe more than that, or maybe you are simply in a hurry and just want to purchase your home right now without having to wait for your credit scores to go up. As stated earlier, as long as you have the money someplace verifiable, like a checking or savings account, you can get the loan if your income can support the payments. It would be recommended that you consult a real estate attorney should you choose to go for those poor credit home loans. Many times these loan documents contain non prepayment clauses that will keep you from being able to refinance or even pay off the loan for several years and you will be stuck with the enormous interest rate regardless of if your credit were to improve. Sub-prime lenders can also throw in many hidden fees, so having an attorney on your side is a good idea, although in some states it is required. Home loans with poor credit are not for the faint hearted.
Either route you take this is a huge investment in your future. Whether you choose to invest in repairing your credit and wait just a bit longer to qualify for the conventional loan programs and interest rates or you choose the poor credit home loan with the higher down payment and higher interest rate, it is possible for anyone in any credit situation to get a home loan as long as they can afford the terms.