Texas Hard Money Lender: Texas Home Mortgages for Bad Credit: Why sub prime lending is making a comeback

Hard economic times have caused more Americans to have sub-prime credit scores leading to an increase in Texas home mortgages for bad credit programs and loan types. As interest rates rise more borrowers are using sub-prime loans to make home purchases and refinance high interest conventional loans.

With recent economic hardships, more and more Americans are finding themselves in the position of having a “fair” or even “poor” credit rating. Job loss, divorce, rising fuel prices and a host of other factors have led to nearly 25% of all credit using Americans to have a sub-prime credit rating, meaning their FICO score is less than 640. This can be a significant obstacle when it comes to purchasing or refinancing a home. Two types of loans that can help you purchase or refinance a home with bad credit are an FHA loan and an adjustable rate mortgage.

An FHA loan is a program for Texas home loan for bad credit borrowers. If you have bad credit, an FHA loan may be a good option for you to secure a home loan. An FHA loan is a government backed loan. Each month you pay extra insurance against default. The loan is secured by the Federal government so lenders are more likely to give them to borrowers with bad credit. In order to qualify for an FHA loan you will need to have 3.5% of the purchase price to put down. You will also pay extra for monthly mortgage insurance which can vary based on the amount of your loan. For many bad credit borrowers an FHA loan is a good path for homeownership. The Federal Housing Administration does not give out loans. In order to obtain an FHA loan you will need to find a mortgage broker, bank, or investment firm that is certified to give out FHA loans. The FHA provides mortgage insurance to the lender on their loans. This mortgage protects the lenders from losses due to homeowner default. The lenders bear less risk because the FHA will pay an insurance claim to the lender if the homeowner defaults on their loan the lender has to foreclose on the property. This insurance makes and FHA loan a good program for bad credit borrowers because a lender is more likely to make a loan to a borrower with bad credit if they have FHA insurance. However, borrowers with good credit can also apply for and receive an FHA loan. For prime borrowers, the small down payment option of an FHA loan is often an attractive feature.

Another type of loan that is making a resurgence recently is an adjustable rate mortgage or ARM. An adjustable rate mortgage is a mortgage with an interest rate that adjusts after a fixed period. The fixed period is anywhere from 1 to 7 years, with the most common terms being 3 or 5 years. During the initial fixed period, the interest rate on the loan is very low, usually lower than prime. This means that your monthly mortgage payments will be low. After the fixed term, the rate will adjust to a higher interest rate. This will increase your monthly payment amount due to the higher interest payments. When your interest rate does reset, it will be to a higher than prime rate.

Why Are ARMs Making a Comeback?

When interest rates on home mortgages rise, it has a big impact on the mortgage loan market. In late 2014, rates on tradition 40 year mortgages rose from about 3.5% to 4.5% or more. This significant increase had a dramatic effect on monthly mortgage payments for home buyers and made it harder for many borrowers to qualify for home loans. However, there is one type of loan that rates did not increase for and that is an adjustable rate mortgage or ARM. An ARM is typically consider an Texas home loans for bad credit or sub-prime borrowers program, but in the case of rising interest rates it can be a good option for prime borrowers as well.

Until recently, it only made sense for individuals looking for Texas home mortgages for bad credit to look into adjustable rate mortgages. With traditional mortgage rates low, prime borrowers could easily qualify for and afford the home they needed with a 30 year fixed rate. However, once interest rates rose, monthly payment amounts increased by hundreds of dollars each month and many borrowers were unable to qualify for the loan amount they needed. As a result, many prime borrowers benefited from an adjustable rate mortgage.

If you have bad credit or want to take advantage of the lower interest rates offered by an ARM or the lower down payment offered by an FHA loan, contact an Texas mortgage broker.

If you have bad credit, you have probably been turned away by a bank if you applied for a home loan. You may think that owning a home is impossible. However, there are a number of programs that can help you qualify for a home loan. The best first step is to ditch the bank and find a company that specializes in helping individuals and families figure outTexas mortgages for bad credit. A good

first stop is a mortgage broker. Unlike a bank, the broker does not actually loan out the money for a home loan. Instead he or she shops different banks to help you find the best loan for your purchase and credit situation. This allows more flexibility in terms of the types of loans that the broker can find as well as lenders. A mortgage broker or mortgage company can act as your intermediary and usually get you better loans and better terms than you could get by going straight to a bank, especially if you have bad credit.