How A Bad Credit Mortgage Works - part 1
by John Cassidy
Whether you're in the market to purchase your first home, or simply refinancing your existing home loan, bad credit can cause some troubling headaches throughout the entire lending process. Have no fear, for modern day brings with it sub-prime lenders that specialize in bad credit mortgages, assisting those who suffer from a blemish or two on their credit reports, a bankruptcy, foreclosure, auto repossession, or anything else that could easily hinder a conventional loan from a traditional lender.
One key factor in bad credit mortgages is the down payment you provide or the amount of equity you have in your home. This is referred to as the LTV or Loan to Value ratio- how much your home is worth compared to the amount financed. The lower the ratio (loan amount), the lower your interest rate, fees and monthly payment will be. The higher the loan amount, the higher your interest rate, fees and monthly payment will be. This is because you are considered a risk, so a large loan will cost you more than the average consumer.
PMI (Private Mortgage Insurance) is another factor in a bad credit mortgage, especially for those who have a higher LTV (as explained above). This insurance differs from your hazard insurance, as that's bought from an insurance agent to protect your assets in case of fire, break in, etc. PMI protects the investors in your home incase you default on your loan payments and the house is sold at auction. PMI will cover any gap between what the home resold for and your mortgage balance, therefore protecting the investors.
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How A Bad Credit Mortgage Works
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