Maybe you've had a few bumps in your financial life causing your FICO credit score to drop - does that mean you can't get a mortgage loan?
Not at all.
If this sounds like you, don't expect to qualify for the best interest rate but realize that there are many loan programs available that target bad credit borrowers, so pursuing a mortgage is definitely worth your time. Here are 3 tips that will help you get the best deal.
Shop at Least 3 Lenders
If you're looking for a bad credit mortgage online it pays to shop multiple lenders, at least 3. Most bad credit borrowers are led to believe that interest rates for sub-prime borrowers are not negotiable. This is false. Natural competition is the best equalizer when it comes to giving the consumer a good deal.
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Remember, your potential mortgage loan is a profitable commodity and brokers are willing to compete by either cutting their origination fee or dropping interest rates a bit to win your business.
Work With a True Mortgage Broker Not a Broker Bank
A true mortgage broker must disclose all fees per the RESPA guidelines. A broker bank does not.
By not disclosing fees, the broker bank may increase the interest rate over and above what you are actually qualified for, a fee called yield spread premium (YSP).
You will not see any line item on your Good Faith Estimate or HUD-1 closing statement regarding YSP if you work with a broker bank.
Paying yield-spread premium can potentially cost you tens of thousands of dollars over the life of the loan.
Most bad credit borrowers are not even aware of this sneaky tactic because they expect a higher interest rate from the start.
Consider an FHA Loan
FHA loans are on the rise, and it's a good thing as this program helps bad credit borrowers get into homes they could not otherwise afford.
FHA requires only 3% down, no minimum FICO score, so qualifying is much easier than a conventional loan requiring 10-20% down payment.
So why not start the inquiry process keeping these 3 things in mind? You'll keep the brokers honest and save a ton of money by not paying excessive fees.
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