| There are great mortgage loans for people with poor | | | | best sub-prime lender, and take your application to him. |
| credit, and yes, you can still save thousands of dollars. | | | | Now, if your debt-to-income ratio (amount you owe |
| In order to receive preferential treatment for mortgage | | | | monthly vs. gross income monthly) is 50% or less, and |
| professionals, you'll need a credit score of 680 or | | | | your credit score is above 500, you'll likely get your |
| better (this is considered A credit). If you have a score | | | | $95,000 loan. Your interest rate, however, will be |
| that is less than 600, you'll fall into a sub-prime loan | | | | between 10% and 12%, creating a very large monthly |
| category. Now, you'll need to get creative, in order to | | | | mortgage payment. So, how are you going to win the |
| get your mortgage and not lose a fortune. | | | | mortgage game, in this case? You have two options. |
| A sub prime lender will offer you virtually any type of | | | | First, you can improve the loan by reducing the LTV. In |
| loan that a conventional lender will offer, but you'll pay | | | | other words, instead of taking a loan at 95% |
| a much higher interest rate, as a risk premium. In other | | | | loan-to-value, you apply for afirst mortgage of $80,000 |
| words, these lenders consider people with low credit | | | | (80% LTV) and a second mortgage of $15,000 (15% |
| scores risky borrowers, because they may have | | | | LTV). Here's how you save money. Instead of |
| some poor payment history. Lenders like people who | | | | borrowing $95,000 at, let's say, 12%, with a payment of |
| pay all their bills on time, even though it is not at all | | | | $977, not including taxes and insurance, you have a |
| uncommon for people to occasionally miss a payment | | | | loan for $80,000 at 8.75%, for a payment of $629. |
| for one reason or another. So, the sub prime, or | | | | Your second mortgage is at 13%, with a monthly |
| non-conforming, or niche, lender says, "We'll take the | | | | payment of $166. Now, your combined monthly |
| risk, but we want to make a lot more money, in order | | | | mortgage payments with two loans are $795, saving |
| to do it." Don't worry. You can get it done, and improve | | | | you $182 monthly over the first mortgage at 12% and |
| your situation to refinance at a better rate later. | | | | $2,184 each year. |
| Let's assume you have poor credit, and you want to | | | | The second option is to take an adjustable rate |
| purchase a house for $100,000. You also have only | | | | mortgage, which offers great savings, just like |
| five percent to put toward a down payment. You bring | | | | conventional loans. If you take a 2-year ARM, which |
| a twofold problem to the lender - poor credit and a | | | | sub prime lenders offer, you might be able to get a |
| very high loan-to-value, or LTV. You need to borrow | | | | rate of 7% or 8%, instead of the 10% you'd likely get |
| $95,000 on a $100,000 home, so your LTV is 95%. As | | | | on a 30-year fixed loan. You might also talk to your |
| a general rule, lenders like purchasers to bring 10 to 20 | | | | mortgage professional about combining option one and |
| percent of their own money to the table, again | | | | two, and taking an ARM on your first mortgage at |
| lowering the risk for the lender; they feel that the more | | | | 80% LTV and still taking a second mortgage for |
| money a borrower has in a deal, the less likely she is | | | | $15,000. This could save you even more. |
| to default. So, your mortgage professional will find his | | | | Get a free mortgage course to learn more. |