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Bad Credit Home Refinance Options

By: Maxime Wong
 

If you've been considering getting a home mortgage refinance and your credit situation is dire there are options. Even with the recent turmoil in the lending market, there are still options for home mortgages for those with credit issues.

If you have a credit score under 620, you're probably looking at dealing with the sub prime market. The sub prime market has been rocked in 2007 with tons of news of lenders going out of business or scaling back their lending operations significantly.

However, sub prime loans still do exist just not as easy to qualify for as they were even six months to a year ago.

Disadvantages Of Sub Prime Mortgages

Even though you can get a sub prime loan, it doesn't mean that you should. There are some disadvantages of getting a sub prime loan, and you should weigh the risks versus the rewards.

A main problem with sub prime loans is that many of them are adjustable, with higher rates of interest. So, you could get in with a decent interest rate, just half a percent or so above normal prime rates, but find yourself in six months with a rate 3-4% above what you would pay with good credit.

Part of the sub prime debacle of 2007 has been these adjustable rate mortgages. After a few adjustments in the rate, many homeowners are faced with payments hundreds and hundreds of dollars above what they originally paid. These homeowners increasingly find it difficult to keep their mortgages current.

Another issue with Sub Prime Mortgages is that often they carry with them prepayment penalties. What that means is you're stuck with the mortgage for a few years until the penalty expires, or you have to pay a huge fee to refinance, sometimes up to 3-4% of the entire value of the mortgage.

These disadvantages of sub prime loans are serious, so you might want to consider trying to qualify for an FHA mortgage. This is a popular choice for borrowers with credit problems. It offers an affordable mortgage without the disadvantages of typical sub prime mortgages. Many lenders have been moving more towards FHA mortgages, as there are some interesting proposals currently being discussed in Congress specifically to make these mortgages more affordable and easier to qualify for.

Many borrowers could benefit from working on their credit, with a little bit of work and a little bit of time you could pull your credit up to qualify for a prime mortgage.

Article Source: Main Articles

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