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Sometimes bad things happen to good people. Even if you're currently stigmatized by bad credit, it doesn't mean you can't get a home mortgage refinance. Even though there have been major changes in the lending market, it's still possible to get a loan regardless of your credit situation. If you have a credit score under 620, you're probably looking at dealing with the sub prime market. The sub prime market has been rocked in 2007 with tons of news of lenders going out of business or scaling back their lending operations significantly. Not to worry, there are still plenty of lenders offering loans to borrowers with less than stellar credit. Other factors such as down payment size, or length of time at job can be used to help you qualify. Sub Prime Mortgages- The Disadvantages There are some very distinct disadvantages to sub prime loans. The whole sub prime debacle that we are currently going through didn't happen overnight. As you would expect sub prime loans come with higher rates of interest than normal mortgages. You can expect to pay between half a percentage point and 3 percentage points above what a prime borrower would pay. That means on a $200,000 mortgage you could pay in excess of $400 a month more. Also many sub prime loans are adjustable, which means that the rates can change over time, and typically they change towards higher payments rather than lower payments. I've also experienced these adjustable rate mortgage woes. My mortgage started out at $1003 a month, and after a few adjustments, property tax increases, home insurance increases, I was staring at a $1,800 a month mortgage payment. It's very hard to keep up with these type of mortgage increases. Many sub prime mortgages are also saddled with prepayment penalties. What that means is that if you sell your home or get a refinance within the first few years of the mortgage, you could have to pay a penalty to the lender of up to 4% of the mortgage amount. This isn't as much of an issue if you plan on staying in your house, but sometimes things change. Another option for many borrowers with credit issues is the FHA mortgage. The FHA mortgage is a mortgage that is backed by the US government. It offers a significantly different choice from the other sub prime mortgages. There are higher paperwork requirements which is about it's only issue. The interest rates are comparable to prime rates, and they typically don't have prepayment penalties. Ultimately the best choice would be to work on your credit and get your credit score above 620 so that you can qualify for a prime mortgage, and not be faced with such difficult decisions.
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