Getting a home loan is never easy tasks despite you are having a good credit score. For bad credit history this is equally tough. Mortgage bad credit home loan is often known as sub prime mortgage for those who have low credit ranking.
The common thing between subprime mortgage and normal mortgage loans lies with the concept of down payment. The down payment is the initial amount that is locked between the borrower and real estate agent which amounts to generally 10% or 20% of the value of the mortgaged property. Hence if the mortgaged property is worth 30lacs then the mortgage amount of 10% i.e. coming to 30,000 will be paid by the borrower in cash, this reduces the size of the home loan to that extent. But payment of down payment requires pre saving from the end of the borrower which may not be possible in case of the borrower with bad credit history, so now loan for bad credit lending business have come up with the lucrative offer of mortgage loan with no down payment facility. No down payment makes the loan to be secured as 100% of the property purchase price. This will push up the risk factor of the lender and he/she will raise the interest rate on such home loan further.
The difference between subprime or bad credit home loans and prime loans is the rate of interest which is high in subprime loan. This is also subject to the clause of balloon payment penalty, pre payment penalty or penalties for both. Pre payment penalty is subject to prepayment of the entire loan amount before the expiry of the loan period by the way of either from the sale value of the property or refinance. The balloon mortgage payment is subject to the clause of lump sum payment of the entire loan balance by a specified span of time period which is generally five years. If the borrower defaults on balloon mortgage payment then he has to pay it off then either by selling his/her house or letting his/her house for refinance.
The basic criterion for candidate to be eligible for a bad credit loan: • A credit score below 620 in a credit score band 620-750
• Debt to income ratio is very high; debt is almost half the income or less
• Bankruptcy within a period of past 2 years
• One default of 60 days on mortgage in the past 1 year
• One foreclosure within a period of past 2 years.
Criteria for Home loans for bad credit