This BLOG On Mortgage Rates On Bad Credit Loans Was UPDATED And PUBLISHED On February 13th, 2020
Are mortgage rates on bad credit loans higher?
- Having bad credit does not affect mortgage interest rates
- Credit Scores do
- This is especially true on Conventional Loans
- Conventional loans do affect mortgage interest rates more so than government loans
In this article, we will discuss and cover the impact on bad credit and lower credit scores have on mortgage rates.
What Determines Mortgage Rates
Here are what determines mortgage rates on Conventional Loans:
- Credit Scores
- Types of property
- Occupancy: Owner Occupant, Second Homes, Investment Homes
- Loan To Value
- Loan Size
Having prior bad credit such as collections, late payments, bankruptcy, foreclosure, deed in lieu of foreclosure, a short sale has no impact on mortgage interest rates.
Government Loans are mortgages insured by a government agency.
Here are the three government loans:
- FHA Loans insured by the Federal Housing Administration or FHA
- VA Loans which is insured by the Department of Veteran Affairs
- USDA Loans which is insured by the Department of Agriculture Rural Development
What Determines Mortgage Rates On Government Loans
Here is what determines mortgage rates on government loans:
- Credit Scores
- Type of property
- Loan size
- Manual Underwriting
- Down Payment does not affect rates due to government guarantee
There are no loan level pricing adjustments on the down payment when it comes to government loans.
Does Prior Bankruptcy Affect Mortgage Rates On Bad Credit Loans
Prior bankruptcies and foreclosures do not affect mortgage rates on government and conventional loans.
- This 2 year waiting period clock starts ticking from the date of the discharge of the Chapter 13 bankruptcy and not the filing date
- Borrowers who have a foreclosure, there is a 3 year waiting period from the date of the sheriff’s sale or the date the deed foreclosed home is transferred out of their name
- The date that the deed is transferred out of homeowner’s name is crucial
Most lenders take their time in transferring a homeowner’s name out of the deed and transferring into theirs.
Mortgage Rates On Bad Credit Loans Depends On lenders
Mortgage rates are not necessarily higher for bad credit borrowers than those with good credit. FHA insured mortgage rates on bad credit loans depend mainly on credit scores of borrowers.
- Late payments, collections, judgments, charge offs, tax liens, or high debt to income ratio has no impact on mortgage interest rates on FHA Loans
- Borrowers with credit scores of 580 FICO or higher can qualify for 3.5% down payment FHA Loans
An FHA Borrower with a 580 credit score will have higher mortgage rates than a 700 credit score borrower.
Mortgage Rates On Lower Credit Scores Are Higher
Borrowers with credit scores that fall below 580 FICO will have higher mortgage rates.
- Mortgage rates on bad credit loans with lower credit scores are higher because lenders associate lower credit scores with higher risk
Borrowers who are mortgage rate-sensitive should optimize their credit scores before applying for a mortgage.
Mortgage Rates On Conventional Loans
Conventional mortgage rates on bad credit loans are affected by the borrower’s credit scores.
- The higher the credit score, the lower the interest rate on conventional mortgage loans
- Those who have just filed bankruptcy 2 years ago or had a foreclosure 3 years ago they can qualify for FHA Loans
- Gustan Cho Associates offers non-QM loans
- NON-QM Loans does not have any waiting period requirements after bankruptcy and/or foreclosure
- Most conventional loan programs have a long waiting period
- 4 year waiting period after Chapter 7 Bankruptcy, recorded date of deed in lieu, and short sale to qualify for Conventional Loans
- 7 year waiting period after the recorded date of foreclosure to qualify for conventional loans
Home buyers or homeowners who have questions on mortgage rates on bad credit loans, please contact us at 262-716-8151 or text us for faster response Or email us at email@example.com.