Bad Credit Mortgages – Predatory Lending Or Helping Those in Need

Bad credit mortgages … just using the term is enough to make you want to run the other direction. But for some people, it is the only way to get a home of their own.

So what exactly is meant by the term “bad credit mortgages”? There are several ways to look at it. Either it means you have bad credit and so were given a mortgage that reflected your credit history or it can just be a way to refer to sub-prime loans.

Sub-prime loans are granted to people who do not qualify for regular conventional loans which can be either because of low income or a high loan-to-value ratio or a poor credit history. The number of these loans has grown exponentially in the past decade as so many people wanted to take advantage of low interest rates and get their own home.

Unfortunately, many people who qualify for prime loans wind up getting sub-prime loans. If they initially have trouble qualifying for a prime loan, they are often directed towards bad credit mortgages. While this may be the only way for some, many people do not need a sub-prime loan. As with most financial things, each lender has its own underwriting and approval guidelines and where Company A may be very strict with its guidelines for prime loans, Company B may be more lenient and be willing to give borrowers a chance.

So how do you know if you have or are being pointed in the direction of bad credit mortgages? Here are a few things to look for.

  • The interest rate is usually much higher than what would be offered to those who are considered a good credit risk.
  • The loan will usually include a lot of fees – an excessive number of origination points in addition to standard fees and interest. This is simply to compensate the lender for the risk of accepting bad credit mortgages.
  • The prepayment penalties will usually be larger, another way to bilk the consumer since most loans are not maintained for the full 30-year term.

Sometimes the sales pitches on these mortgages make them sound so attractive that even “good risk” borrowers will want them. However, when you get down to the fine print and the details, these are not mortgages anybody would “choose” to have. They should only be as a last resort. When comparing terms, it might be worth it for you to simply wait a few years and clean up your credit or fix whatever problem makes you a candidate for bad credit mortgages. Then try again in a few years when you will be considered a “good risk” and therefore qualify for better mortgage terms.Even if you think your only option is bad credit mortgages, be sure to shop around and get several quotes before making your final decision. Read the fine print, compare interest rates and fees, and ask questions to clarify anything you do not understand.

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