| Copyright RebuildCreditScores 2008. All Rights Reserved |
Bad Credit Mortgage Loans:
Tips for Getting a Good Interest Rate
May 2007
by Lisa Phillips
Tips for Getting a Good Interest Rate
May 2007
by Lisa Phillips
Get your credit scores first
It is imperative to pull your own credit scores before you approach a lender. Knowing your
credit score will allow you to approach a lender and let them know upfront what your scores
look like. The lender will more than likely go with your middle score. Knowing your credit score
ahead of time will help you eliminate lenders that do not fund bad credit mortgage loans. While
the credit scores you pull may not be the same as the ones the lender pulls they should be
fairly close. The most accurate scores will come from Equifax.
Get quotes from multiple lenders
When seeking a bad credit mortgage loan you must shop around. Many lenders have preyed
on consumers with less than perfect credit because they have fewer options. Scrutinize every
offer and compare quotes. Most lenders will offer an adjustable rate mortgage (ARM ) with a
fixed rate mortgage (FRM) component. The component would be an introductory high interest
rate that is fixed for 2 or 3 years. After the introductory period the interest rate will adjust
periodically and you will end up paying even higher interest rates.
Consider using a mortgage broker
Mortgage brokers often have access to many lenders and programs that can help you obtain a
bad credit mortgage loan. The key is finding a reputable broker who has good references. Don’
t be afraid to request references and never hesitate to look up your mortgage broker through
your State’s Licensing Board (Usually the Department of Real Estate). A good mortgage
broker can find the best loan for you. You will have to pay a commission to the mortgage
broker but the benefits may be worth it. Remember that fees and commissions are negotiable.
Rapid re-score your credit files
Rapid Re-score is a service offered by a lender or mortgage broker in which your credit scores
can be re-analyzed and quickly corrected for the purposes of a mortgage loan. Rapid Re-
score accelerates the dispute process, corrects negative information and increases your credit
score immediately. Read More
Lower your rates by making a down-payment
A bad credit mortgage loan with a high down-payment can get you lower interest rates. The
lesser amount you pay as a down-payment, the higher your interest rates will be. If you haven’t
already done so start saving some money towards your down-payment and cutting down on all
unnecessary expenses. Even if you are refinancing and your credit is bad, a small down-
payment may get you a better interest rate.
Watch out for pre-payment penalties
A pre-payment penalty is an agreement between the borrower and the lender that determines
what and when the borrower is allowed to pay off a mortgage loan. Pre-payment penalties
come in two types. (1) Soft pre-payment penalty is when a borrower sells their home before
then end of the pre-payment period without any penalty; (2) Hard pre-payment penalty is when
a borrower sells or refinances their home and is hit with the penalty no matter what the
circumstances. There is no option of avoiding the penalty if the borrower sells their home
before the end of the pre-payment period.
Why the higher interest rates
Having bad credit increases the likelihood you will default on your home loan more than
someone with excellent credit. Lenders compensate for higher risk loans by charging higher
interest rates on the loan.
Request the rate sheet after you are approved
Since bad credit mortgage loans already charge higher interest rates, there is no need for you
to over pay for a mortgage loan. Protect yourself by requesting your lender’s “rate sheet” from
the wholesale lender that approved your loan. The rate sheet will show the mortgage rate you
were approved for by the wholesale lender. Make sure the rate sheet is directly from the
wholesale mortgage company and not the loan officer’s company as their rate sheet already
has a mark-up included. Fees can range from 1-6% of the loan amount so while the interest
rate is usually set and cannot be negotiated, you can negotiate the loan origination and other
fees involved in getting a mortgage loan.
Rebuild your credit scores with a mortgage loan
Pay your monthly mortgage on time, along with your other bills and watch your credit score
increase. Making regular, timely payments is a quick way to rebuild your credit scores. If
possible, set automatic bill pay so you don’t have to worry about it. Additionally, just having a
mortgage loan, in good standing, in your credit mix will increase your overall scores.
Refinance as soon as possible
A bad credit mortgage loan is definitely not the best scenario; however, it does have its
advantages. Buying a home can actually help you improve your credit tremendously. Establish
a history of timely, consecutive mortgage payments for 2 years then refinance for a lower rate.
Be aware of your loan terms and watch for a pre-payment penalty. If you have a pre-payment
penalty you may want to wait to refinance.
It is imperative to pull your own credit scores before you approach a lender. Knowing your
credit score will allow you to approach a lender and let them know upfront what your scores
look like. The lender will more than likely go with your middle score. Knowing your credit score
ahead of time will help you eliminate lenders that do not fund bad credit mortgage loans. While
the credit scores you pull may not be the same as the ones the lender pulls they should be
fairly close. The most accurate scores will come from Equifax.
Get quotes from multiple lenders
When seeking a bad credit mortgage loan you must shop around. Many lenders have preyed
on consumers with less than perfect credit because they have fewer options. Scrutinize every
offer and compare quotes. Most lenders will offer an adjustable rate mortgage (ARM ) with a
fixed rate mortgage (FRM) component. The component would be an introductory high interest
rate that is fixed for 2 or 3 years. After the introductory period the interest rate will adjust
periodically and you will end up paying even higher interest rates.
Consider using a mortgage broker
Mortgage brokers often have access to many lenders and programs that can help you obtain a
bad credit mortgage loan. The key is finding a reputable broker who has good references. Don’
t be afraid to request references and never hesitate to look up your mortgage broker through
your State’s Licensing Board (Usually the Department of Real Estate). A good mortgage
broker can find the best loan for you. You will have to pay a commission to the mortgage
broker but the benefits may be worth it. Remember that fees and commissions are negotiable.
Rapid re-score your credit files
Rapid Re-score is a service offered by a lender or mortgage broker in which your credit scores
can be re-analyzed and quickly corrected for the purposes of a mortgage loan. Rapid Re-
score accelerates the dispute process, corrects negative information and increases your credit
score immediately. Read More
Lower your rates by making a down-payment
A bad credit mortgage loan with a high down-payment can get you lower interest rates. The
lesser amount you pay as a down-payment, the higher your interest rates will be. If you haven’t
already done so start saving some money towards your down-payment and cutting down on all
unnecessary expenses. Even if you are refinancing and your credit is bad, a small down-
payment may get you a better interest rate.
Watch out for pre-payment penalties
A pre-payment penalty is an agreement between the borrower and the lender that determines
what and when the borrower is allowed to pay off a mortgage loan. Pre-payment penalties
come in two types. (1) Soft pre-payment penalty is when a borrower sells their home before
then end of the pre-payment period without any penalty; (2) Hard pre-payment penalty is when
a borrower sells or refinances their home and is hit with the penalty no matter what the
circumstances. There is no option of avoiding the penalty if the borrower sells their home
before the end of the pre-payment period.
Why the higher interest rates
Having bad credit increases the likelihood you will default on your home loan more than
someone with excellent credit. Lenders compensate for higher risk loans by charging higher
interest rates on the loan.
Request the rate sheet after you are approved
Since bad credit mortgage loans already charge higher interest rates, there is no need for you
to over pay for a mortgage loan. Protect yourself by requesting your lender’s “rate sheet” from
the wholesale lender that approved your loan. The rate sheet will show the mortgage rate you
were approved for by the wholesale lender. Make sure the rate sheet is directly from the
wholesale mortgage company and not the loan officer’s company as their rate sheet already
has a mark-up included. Fees can range from 1-6% of the loan amount so while the interest
rate is usually set and cannot be negotiated, you can negotiate the loan origination and other
fees involved in getting a mortgage loan.
Rebuild your credit scores with a mortgage loan
Pay your monthly mortgage on time, along with your other bills and watch your credit score
increase. Making regular, timely payments is a quick way to rebuild your credit scores. If
possible, set automatic bill pay so you don’t have to worry about it. Additionally, just having a
mortgage loan, in good standing, in your credit mix will increase your overall scores.
Refinance as soon as possible
A bad credit mortgage loan is definitely not the best scenario; however, it does have its
advantages. Buying a home can actually help you improve your credit tremendously. Establish
a history of timely, consecutive mortgage payments for 2 years then refinance for a lower rate.
Be aware of your loan terms and watch for a pre-payment penalty. If you have a pre-payment
penalty you may want to wait to refinance.
Obtaining a mortgage loan with less than perfect
credit is not impossible. Bad credit mortgage loans
are becoming more difficult to get in today's market
but it can be done.
Lenders view bad credit mortgage loans as a
higher risk. When higher risk loans are made, the
interest rates are not as favorable as traditional
mortgage loans.
If you do not have the time to rebuild your credit
before applying for a bad credit mortgage loan,
then at best deal possible. Many lenders have
various loan programs to fit your needs.
credit is not impossible. Bad credit mortgage loans
are becoming more difficult to get in today's market
but it can be done.
Lenders view bad credit mortgage loans as a
higher risk. When higher risk loans are made, the
interest rates are not as favorable as traditional
mortgage loans.
If you do not have the time to rebuild your credit
before applying for a bad credit mortgage loan,
then at best deal possible. Many lenders have
various loan programs to fit your needs.
Related Topics
 | First-Time Home Buyer | |
| Rapid Re-Score Credit Files | |
| Foreclosure Help and Options | |
| Down Payment Assistance by State | |
| Types of Mortgage Loans | |
Once you demonstrate you can make on-time mortgage payments for at least a year, you may
be able to refinance a bad credit mortgage loan and get more favorable terms.
Tips for Getting the Best Deal Possible:
be able to refinance a bad credit mortgage loan and get more favorable terms.
Tips for Getting the Best Deal Possible:
 |  |  |  |  |  |  |  |  |
Related Articles
