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.
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.
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
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.
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