Bad Credit Home Loans - Information and Advice

"Get the lowest rates for bad credit mortgage loans."

Bad Credit Home Loans for the "Credit-Challenged"
by Arnold Kling

Many people who are interested in mortgages do not fit the traditional profile of a low-risk borrower.

Examples of what the lending industry calls "sub-prime" borrowers include:

• Borrowers whose credit history is less than perfect
• People who need a mortgage for more than the value of their home
• People who want to escape the really high interest rates on outstanding credit card balances

With a mortgage loan, some of the lender's risk is mitigated by the fact that the poor credit or bad credit loan is secured by your property.

In recent years, mortgage lenders have developed various innovations to serve borrowers whose needs fall outside of the box of traditional underwriting.
 

Online lenders

E-Loan is on the forefront in offering quick approval on poor credit or bad credit loans. They provide fast and easy approval (in under five minutes) while treating customers with respect.

Click here to find out more about E-Loan's bad credit home loans.
 

Types of poor credit or bad credit loans:

Risk-based Pricing
In the past, major financial institutions simply refused to deal with borrowers with flawed credit histories. As a result, sub-prime borrowers were forced to go outside the mainstream financial system and pay interest rates of 30 percent or more.

Today, many reputable lenders are willing to lend to sub-prime borrowers. Using risk-based pricing, these lenders charge interest rates that are above the rates they offer their best borrowers but still well below the rates that you used to have to pay if you did not have perfect credit.

125 percent LTV mortgages.
"LTV" stands for "Loan-to-Value," or the ratio of the amount of the loan to the value of the property that secures the loan.

If the LTV is 125 percent, this means that the lender actually is willing to lend you more than the value of the property.

When a family is hit with a sudden increase in expenses, refinancing their mortgage into a 125 percent LTV mortgage can help to solve the cash flow crisis.

Home equity loans
When homeowners are paying high interest rates on credit card balances, sometimes they can reduce their interest expense by taking out a second mortgage.

Often, these are called "home equity loans," because the loan is backed by the equity in your home, which is the value of your home less the amount you owe on your existing mortgage.

Do's and Don'ts for people who are considering a bad credit loan product:
 
• Do try to clear up as many outstanding credit issues as you can. If your credit report incorrectly has you late in making a payment to an account, this could end up leading to a higher interest rate on your mortgage.

• Don't use a "credit doctor" to try to fix your credit report. They charge outlandish fees and often their recommendations are counterproductive or even illegal.

• Do compare rates from at least two lenders. Because of risk-based pricing, it probably will turn out that the only way to get an accurate quote is to complete an application. The lender needs all of the information from the application, as well as your credit report and other data, in order to determine the interest rate to charge.
 
• Don't pay a hefty application fee to a broker who promises to "handle your difficult case." The application fee, which covers the process of evaluating your loan application, usually is about $200.

In addition, you may be charged about $50 for a credit report and about $300 for an appraisal. Many lenders will charge less than those amounts.

Paying more does not increase your chances of getting a loan. Remember that lenders are competing for your business and expect to earn a profit from making the loan.

They should be happy to take your application, and their incentive ought to be to make the loan.
 

Bad credit loan strategy

A good strategy is to apply online and then use your rate quote to try to negotiate a better deal locally.

E-Loan offers fast approval and the lowest online rates for bad credit home loans.
 

Related Pages

Applying For A Mortgage - Tips on how to apply for a mortgage - What to look out for when applying for your next home mortgage loan.

Bad Credit Mortgage Loans - Information and tips about bad credit mortgage loans - How to get the best possible rates on poor credit home loans, refinance, and home equity line of credit borrowing.

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