Home Loan With Bad Credit: Higher Mortgage Rates

Mortgage lenders will charge higher mortgage rates to those seeking a home loan with bad credit, especially for conventional mortgage loan programs.  Conventional mortgage loan programs are extremely credit sensitive.  The minimum credit score required for a mortgage loan applicant to qualify for a conventional loan is a 620 FICO credit score.  A 620 FICO credit score is considered a very low credit score for conventional loans and those with a 620 FICO credit score will most likely get penalize with a high mortgage rate.  To get the best possible conventional mortgage rates, the conventional mortgage loan borrower needs to have a credit score of higher than 760 FICO.  Every 20 point drop from the 760 FICO credit score will had an adjustment which means a higher rate for every 20 point drop in credit scores.  For example, if par rates on a conventional mortgage loan was a 4.5% with a 760 FICO credit score, the rates might be 4.625% with a 740 FICO credit score, 4.75% with a 720 FICO credit score, 4.875% with a 700 FICO credit score, 5.0% with a 680 FICO credit score, 5.125% with a 660 FICO credit score, 5.25% with a 640 FICO credit score, and 5.5% with a 620 FICO credit score.  Please do not quote me on the above rates and the above rates are just used for illustration purposes.

FHA Mortgage Rates With Bad Credit

FHA mortgage rates are not as sensitive to credit scores.  Current FHA 30 year fixed mortgage rates for mortgage loan borrowers with credit scores of 640 FICO or higher is 4.25%.  So whether your credit scores are 640 FICO or 740 FICO, you FHA mortgage rates will be 4.25%.  However, those with lower than 640 FICO scores may get charged price adjustments where the FHA mortgage rates may be higher.  Those with credit scores under 600 FICO scores may get much higher mortgage rates.  Some FHA mortgage lenders can charge mortgage rates higher than 5.0% for those with credit scores under 600 FICO credit scores.

Buying Mortgage Rates Down By Paying Points

There are cases for those mortgage loan borrowers who have high debt to income ratios to buy down their mortgage rates in order to meet the debt to income ratio requirements.  For example, those mortgage loan borrowers who barely qualified with borderline debt to income ratios, they may no longer qualify for the mortgage loan if their insurance premiums are much more than expected.  They may have options in seeking ways of reducing their monthly expenses such as paying off credit cards but after exhausting all possibilities and if their debt to income ratios are still high, their only other option may be to buying down their mortgage rates by paying points.  For example, say that a mortgage loan borrower with a 580 FICO score is charged a mortgage rate of 5.625% and in order to meet the debt to income ratio cap the mortgage loan borrower needs to be at a 5% mortgage rate.  The mortgage lender can charge 2% to 3% in order to be able to buy down the 5.625% mortgage rate to the 5.0% mortgage rate.  Points are not cheap and quite costly.  You can use sellers concessions towards buying the mortgage rates down.

Gustan Cho

www.gustancho.com

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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