With great weather, a stable economy, and a real estate market with
great deals, it is no wonder that so many people want to move to Texas. With
some parts of the state getting over 300 days of sunshine each year and skiing
in the northern part of the state, it is the perfect place people with any
climate preference. The relatively low humidity also makes it ideal for people
with respiratory problems and mild winters are great for snow birds. If you
find yourself dreaming of moving to Texas, but have bad credit, you will want
to start researching
Texas sub prime mortgage to learn about the different types of mortgages available in the
state for borrowers with bad credit or high debt to income ratios. If you
cannot qualify for a traditional mortgage due to a low credit score, a subprime
mortgage might be a good option.
A subprime mortgage is a loan given to a borrower who is considered to
be a higher risk due to a poor credit score. Typically a sub prime borrower has
a credit score of less than 640, but this does vary. Since the lender is
assuming a higher risk, the interest rate is also generally higher. Critics of
subprime lending argue that it charges unfair interest rates and further
burdens individuals with low incomes and high amounts of debt. However, for
many individuals, a
subprime mortgage, Texas is the only way they can qualify for a home loan. There are several
types of subprime mortgages available and each type has different advantages
and risks.
Although subprime mortgages generally charger higher interest rates,
for almost 42.5 million Americans, it is the only home loan they can qualify
for due to a low credit score. If you find yourself having trouble obtaining a
home loan in Arizona based on your credit, do your research on subprime mortgage Texas to determine
the type of loan programs you may be able to qualify for. Knowing the different
types of subprime mortgages can help you select the right product for you and
your family.
Types of Mortgages Available to Borrowers
with Bad Credit
One type of mortgage
available to subprime borrowers is what is known as an adjustable rate mortgage
or ARM. An ARM starts off at a low interest rate, usually lower than the prime
rate around 2-3 percent. After a period of time from 1 to 5 years, the rate then
adjusts to a much higher rate anywhere from 10 to 20 percent, depending on
market conditions. This will cause your payment to go up rapidly. ARMs got a
bad reputation during the housing crisis of the mid 2000s and were accused of
being a way for banks to loan money to and take advantage of subprime
borrowers. Many people lost their home due to the inability to make the new,
higher payments after the rate adjusted. An ARM can be a good option if you are
in the process of rebuilding your credit and will be able to refinance to a
traditional loan before your rate adjusts. It is also a good option if you are
buying a short term home to either fix and flip, or you plan on moving within
the low rate period. An ARM is also a good option as long as you budget accordingly
so you do not get priced out of your home and wind up unable to pay your
mortgage.
A second, less common
type of subprime loan is a hard money loan. A hard money loan is offered by a
group of investors, rather than a bank. It is a short term loan that is
designed primarily for fix and flip houses. Since investors are offering the
loan, not a bank, they are more likely to give loans to borrowers with low
credit, providing they have a sound real estate investment. Hard money loans
are usually short term loans and last for a couple years. A hard money loan is
a good investment but not if you are planning on living in the home for any
amount of time.
Another program that
is available to low credit borrowers is an FHA loan. This type of loan is backed
by the federal government and offers low interest rates and low down payment
options. Most FHA loans only require a 3.5% down payment which makes it a great
option for borrowers without a large amount of liquid cash assets. This is also
a great option for someone buying a second home who may not have the down
payment they would have if they sold their first home. The loan is insured by
the government so the borrower will end up paying what is called primary
mortgage insurance or PMI payments. PMI payments can range from anywhere
between 80 and a few hundred dollars so it does increase your monthly mortgage
payment. You will make these payments until you have paid off 20% of your home
loan.
Talk with a mortgage broker to further discuss your loan options. You
may also qualify for certain federal programs that offer down payment
assistance or cash back at closing. Some of these include the Home in 5 program
or the Home Affordable Refinance Program (HARP). Call a Texas mortgage
broker to help get you started on your move to the Loan Star State.
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027
