The bad credit mortgage is often called a sub-prime mortgage and is a type of mortgage that consists of homebuyers with low credit ratings. Due to the low credit rating, conventional mortgages are not offered because the lender sees this as the homebuyer having a larger-than-average risk of not following through with the terms of the loan. Lenders often charge higher interest rates on sub-prime mortgages in order to compensate for the high risk that they are taking. Ways that Subprime Mortgages Differ Subprime loans have interest rates that are higher than prime loans. Lenders, however, must consider many factors in a particular process that is called “risk-based pricing,” which is when they determine the terms and rates of the mortgage. Sub-prime rates will be higher, but it is the credit score that determines how high. There are also other determining factors like what kinds of delinquencies are recorded on the borrower’s credit report and the amount of the down payment. An example is the fact that the lender views late rent or mortgage payments as being worse than having credit card payments that are late. Sub-prime loans are very likely to have a balloon payment penalty, pre- payment penalty, or penalties for both. A pre-payment penalty is a charge or fee that is placed against the homebuyer for paying off the loan before the end of the term. This early payoff can be because the borrower sells the home or they refinance it. A mortgage that has a balloon payment means that the borrower will have to pay off the entire balance in one lump sum after a specified period has gone by. This period is usually five years. If the borrower is unable to pay the whole balloon payment, they must refinance, sell, or lose the house. A Closer Look at your Credit Scores Credit scoring is the method in which credit risk is assessed. It uses mathematics to determine a person’s credit worthiness based on their current credit accounts and their credit history. The system was created in the 1950s, but did not see widespread use until the last couple of decades. FICO Credit scores are numbers reported that range from 300-900. The higher the number is, the better the score. Creditors see this number as an indication of whether or not an individual will repay money that is loaned to them. The scores are determined by looking at the following data: • Late payments • Non payments • Current amount of debt • Types of credit accounts • Credit history length • Inquiries on the credit report • History of applying for credit • Bad credit behavior, which can be something such as writing bad checks The score that creditors like to see is above 650, which is a very good credit score. Those who have credit scores of 650 and above will have a good chance of acquiring quality loans with excellent interest rates. Scores between 620 and 650 indicate that a person has good credit, but does indicate there might be potential trouble that the creditors may want to review. A creditor may require the applicant to submit additional documentation before a loan will ever be approved. When scores are below 620, the consumer may find that they can still acquire a loan, but the process will take longer and involve many more hurdles. Below this number indicates a greater credit risk, so more aspects have to be reviewed.

Bad Credit Colorado Home Loans

There are many different loans and often more than one that will work for you. Peak Home Mortgage invites you to talk with us and let us help you decide what is best for you. Review the other options below

Conventional Home Loans

Home Equity Loans (HELOC)

Reverse Mortgage Loans

VA Home Loans

Refinance Your Home

FHA Home Loans