One of the real estate financing method for investors with low credit is opting for sub-prime mortgage and high rate of interest is levied by the lenders. DC Fawcett Reviews This is done so as to compensate the loss due to payment default if any in the future. The loan is characterized by variable rate of interest than fixed rate.
DC Fawcett put forth his ideas about availing mortgages with low credit.
- Sub-prime loans levy high rate of interest than prime loans. The risk-based pricing factor has to be kept in mind while applying for sub-prime loans. Investors are already affected by low credit score; further debt will lower the score, so sub-prime loans can be applied only when score is improved.
- In some cases borrowers may take a higher interest second mortgage to help qualify for a lower cost first mortgage. They are characterized by many fees like balloon payment penalty, pre-payment penalty etc. Apart from that pre-payment penalty is levied that is against the home buyer if the loan is paid before the time period which is usually 5 years.
- A balloon payment is a huge sum of money is paid by the investor to sell the home or for refinancing. The first-time homebuyers may or may not come across these types of payments, which is actually a scam. The scammers make use of this opportunity and mint money.
- In order to prevent such happenings, it is better to take the help of financial advisors. The legal paperwork must also be reviewed. The bad credit may happen due to late payment, Non-payment of debts, already existing debt and issues related to credit history.
- When you are writing checks, you must be careful; bad checks lower the score. The lenders expect a score of 650 and above to approve a loan and also the rate of interest will be low. As investors have low credit, documentation is must which is expected by the creditor.
- For investors having scored less than 620, the loan process is longer where he/she has to cross many obstacles and questionnaires. They have to reason out why the score is low. If the score is less than 620, the investor is under risk and can apply for loan when it is 650 and above.
- Another type of loan is 2/28 ARM offering loans for 2 years with a fixed rate and then the rate is adjusted. Failing to pay the mortgage on time will result in loss of home ownership or in other words, foreclosure.
Joint borrowers (couples) who apply for a mortgage together pay a higher interest rate than individual borrowers. There are more chances that one may have a good credit score and other with a low credit score. This is pretty advantageous for an individual with a low credit as they can use their spouse to be a co-signer.
Opening new accounts or availing new credit cards and failing to pay dues will lower your score by 10 points. To know more about credit and mortgages, check out the blogs in DC Fawcett Virtual real estate investing club.