The Truth about Getting an Arizona Mortgage with Bad Credit

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The Truth about Getting an Arizona Mortgage with Bad Credit

If you are trying to get an Arizona mortgage with bad credit, it is important that you know all of your options. There are several programs available to help Arizona borrowers obtain a home mortgage, even if they have bad credit.
If you have a credit score of less than 640, you are considered a sub-prime borrower in terms of credit worthiness. This can impact your ability to obtain a home loan, care loan, or even a store credit card. You may feel like there is no way out of your situation. However, you are not alone. Nearly 42.5 million Americans have sub-prime credit. In addition, the average credit score is about 678, meaning that the average American has less than stellar credit.
If you find yourself being denied a home loan due to your credit score, there are a number of options to help you find an Arizona mortgage with bad credit. One loan type that is available for borrowers in the market for an Arizona mortgage with bad credit is a hard money loan. A hard money loan is designed as an investment strategy and isn’t a good option for owning a home you intend to live in long term. A hard money loan is backed by a group of investors, rather than a bank. The investors will look at your property purchase as well as renovation plans to determine if the loan is a good investment. If you have bad credit they are more likely than a bank to look past your credit score if you have a sound investment idea. Hard money loans are short term loans primarily designed to fix and flip a property for a profit.

Adjustable Rate Mortgages, FHA Loans, and Hybrid Programs

Another type of loan a borrower in Arizona with bad credit might consider is an adjustable rate mortgage or ARM. An adjustable rate mortgage is a short term mortgage with a term of anywhere from 1 to 7 years. During your initial term the interest rate on your mortgage is very low, usually below the prime rate. This makes your payment relatively low as well. The lower monthly payment allows borrowers with bad credit to qualify when they may not be able to for a traditional 30 year loan. After the initial term of you loan, the interest rate resets and your payment may be higher. This can be a good option for someone who is on the road to repairing his credit and will be able to refinance to a 30 year mortgage at the end of the adjustable rate term. One thing to keep in mind with an ARM is that they require a 10% down-payment. This helps ensure that the property value will not drop significantly below the loan amount.
A final type of loan that can help individuals looking for an Arizona mortgage with bad credit qualify to purchase a home is an FHA loan. FHA stands for Federal Housing Administration and this entity gives out a type of government backed loan. Borrowers are only required to make a 3.5% down-payment so it can help keep some cash in your pocket. In addition, the loan is insured by the federal government so banks are more willing to lend to sub-prime borrowers. This insurance will cost you though. Be aware that if you take out an FHA loan, you will be required to pay make PMI payments. These can be anywhere from 80 to over 200 dollars a month depending on the amount of your loan. You will make them until the loan amount that you have is less than 80 percent of your purchase price. The PMI payments are a type of insurance you pay to help secure the investment in case of default.
A less well known type of loan for borrowers with bad credit is an FHA hybrid loan. This loan type combines the government insurance of an FHA loan with the low interest rates of an ARM. This loan does not require as large of a down payment as a traditional ARM and there are also limits on the amount that your interest rate can increase once the rate resets. The Federal Housing Administration controls the market conditions of these loans to make sure that even when it resets to the higher amount, the payment does not rise as significantly as with a traditional ARM.

A home loan can be a great way to rebuild your credit and put you on the path to having more borrowing capacity. If a home loan seems like a good option, talk with a broker to discuss the specifics on the loan type you are applying for and to find the right program and loan for you. 

Dennis Dahlberg

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

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