Texas Hard Money Lender: Can Texas Mortgages for Bad Credit Benefit Prime Borrowers?

For some borrowers, Texas mortgages for bad credit programs are the only options they have to purchase a home. However, some of these bad credit loans can benefit traditional borrowers as well.

Sub-prime lending is making a comeback in a big way. With rising interest rates and a large percentage of borrowers with bad credit, many banks and mortgage brokers are back in the business of giving out sub-prime loans. In Texas, mortgages for bad credit borrowers are on the rise with a number of equity firms, private investors, banks, and mortgage brokers giving out loans to sub-prime borrowers.

Some experts are leery of this trend, blaming sub-prime lending practices for the housing collapse in the mid-2000s and the subsequent economic recession. Because of this, restrictive mortgage regulations went into effect which have all but crippled the housing economy. With a decline in housing purchases and virtual shut out for bad credit borrowers, the government has loosened some regulations and in Texas mortgages for bad credit are starting to re-surge. But, it is not only bad credit borrowers who can benefit from sub-prime lending. Many borrowers with excellent credit can still take advantage of bad credit loans to maximize borrowing potential and minimize interest rates.

Types of Sub-Prime Loans in Texas

One type of loan that is available for people with bad credit is an adjustable rate mortgage or ARM. An ARM is offered to subprime borrowers who would not qualify for a traditional loan. It offers a low interest rate at first but then resets to a high interest rate after a specified period, usually 1 to 7 years. Once the rate adjusts your mortgage payment will increase due to the higher interest rate. This can be a good option if you only plan on owning the property short term or if you know you will be able to qualify to refinance your loan at the end of your low rate period. Although an ARM is a type of Texas home loan for bad credit, it can also be beneficial for borrowers with good credit. Specifically, when interest rates are high, an ARM can get you a lower rate and therefore a lower monthly payment. Once the rate resets you can either sell the property for a profit or you can refinance to a traditional mortgage.

A second type of Texas home loans for bad credit that is available is a hard money loan. A hard money loan is secured through a mortgage broker but is backed by investors instead of a bank. This is especially beneficial for people looking to do a fix and flip or short term purchase. Depending on the merit of the property you are purchasing as well as potential for income, investors will often invest capital, even if your credit score is lower than what is ideal. It should be noted that hard money loans are short term loans only. They cannot be used to purchase a home you plan to live in for any significant amount of time. These are designed primarily for real estate investors. A hard money loan is a good option for borrowers with good credit but a high debt to income ratio or who own additional property. Hard money lenders do not have as strict of debt to income ratios as traditional banks.

A third type of loan is a type of FHA loan. An FHA loan is backed by the government and will allow you to borrow about 96.5% of the value of the home you are purchasing. This means that you won’t have to come up with a large chunk for a down payment. In addition, the government backing means that you will be more likely to qualify, even with less than stellar credit. You will pay monthly insurance on your loan. In addition to you principle and interest payments, you will also pay a PMI insurance payment. This will increase the amount of your monthly mortgage payments until you pay off 20% of the loan amount. You can also couple FHA loans with different federal programs that offer down payment assistance or cash back at closing like Home in 5. These programs are constantly evolving and changing, so make sure to talk with a mortgage broker about what you may qualify for. FHA loans are a good loan for prime borrowers who want to keep more cash in their pocket with lower down payments and cash back programs.

Make sure to choose your loan carefully and

weight the risks and benefits of your options.

The loan types mentioned above are some examples of sub-prime loans that can benefit prime borrowers. It is important to be aware of all risks associated with loans and to know that not all lenders are created equal. There are still predatory firms that will raise interest rates and give out irresponsible and risky loans. Find a licensed mortgage broker and a real estate agent you can trust to help you navigate the world of sub-prime lending.