Why 100% Mortgage Loans With Bad Credit Are Not An Impossible Dream
While lenders will always encourage those seeking a mortgage to have a
down payment ready as part of their application, it is not always
possible to do so. A down payment can translate to perhaps $25,000, and
when bad credit is a factor that limp sum can be very hard to gather
together. But the good news is that 100% mortgage loans with bad credit
are available from some lenders.
It is always a challenge to secure mortgage approval despite bad credit,
so to secure the total purchase price of a home is understandably
difficult. But thanks to sub prime lenders, there is a possibility to
not just get the purchase price, but a sufficient sum to cover the extra
legal and administrative costs too.
So, by getting 100% bad credit mortgage loans approved, everything can
be taken care of from one fund. This can be a very convincing aspect for
borrowers with low credit scores seeking funds, knowing that
traditional lenders are set to turn their applications down.
The Advantages of a 100% Mortgage
It might seem that applying for such loans really only adds to the
burden of debt. But the fact is that there are real advantages to
seeking 100% mortgage loans with bad credit.
The first and most obvious one is that there is no need to get a down
payment together. In most cases, mortgage approval despite bad credit is
secured largely on this aspect. But the truth is it can be a huge drain
on the resources of individuals who are already handling the challenges
of a bad credit rating. Getting $20,000 or $30,000 together is not
easy, even at the best of times.
A second advantage is that the need to pay private mortgage insurance is
lifted. This is good news because after getting a 100% bad credit
mortgage loan approval, the repayments will be significant enough
without having to fork out for something that offers no security at all
to the borrower, just the lender.
The Disadvantages of a 100% Mortgage
But there are negatives to taking on 100% mortgage loans with bad
credit, not least the size of the repayments to be made. Normally, a
down payment would reduce the size of the mortgage required, so the
repayments would be lessened too, but in this case the total sum needs
to be repaid over the lifetime of the mortgage.
This can translate to a couple of hundred dollars per month, which might
otherwise is used elsewhere. This can be countered by extending the
life of the loan but, as with all mortgage approvals despite bad credit,
that means the overall interest paid increases. So, instead of repaying
a $250,000, for example, the borrower might repay $400,000 over 40
years.
Bad credit is the key element, with it automatically meaning a higher
interest rate charged. With sub prime lenders, who are generally more
open to accepting the risks associated with lending to bad credit
borrowers, the extra fees can also be rather high. So, while 100% bad
credit mortgage loan approval means a home can be bought, the pressures
are high.
Options Available
The overall cost of a 100% mortgage loan with bad credit can be very
high, which is why there are some options available. One of the more
popular is an 80-20 mortgage loan, where 20% of the property is covered
by a piggyback mortgage. This can help with getting mortgage approval
despite bad credit because the repayment structure on 80% is more
manageable.
The piggybank mortgage, meanwhile, is available at a higher rate of
interest, thereby increasing profits on lenders compared to 100% bad
credit mortgage loan approval.
