Bad credit can affect your entire life. You may feel that your credit score is hanging over your head, keeping you from qualifying for car loans, mortgages, credit cards, and may even keep your from getting certain jobs. If your credit score is below 620, you probably think that owning a home is beyond your reach. As depressed as you may feel about your credit, it is important to know that you are not alone. Nearly 25% of credit using Americans have what is classified as sub-prime credit, meaning that their FICO score is below 620. In addition, the average credit score is about 640 meaning that most Americans do not have an “excellent” or even “good” credit rating.

With many Americans falling into the “fair” or “poor” credit classifications, there are many Arizona bad credit mortgage lenders that can help sub-prime borrowers secure a home loan to purchase a residence or investment property. If you are searching for a bad credit home loan, it is important to know all of your options as far as lender types and institutions.

One type of lender is a bank. A bank is the most common type of lending institution and usually the entity that borrowers think of first. Banks offer many different loan types including FHA loans, adjustable rate mortgages, and traditional 15 and 30 year fixed mortgages. The bank sets its interest rates based on market conditions, government regulations, and other factors. There is one interest rate to choose from, the one offered by the bank you are obtaining the loan from. The main downfall of bank mortgage loans is that they are often not a good option for bad credit borrowers. Banks tend to shy away from any investment they deem too “risky” and will often define borrowers in terms of their FICO score, without assessing other factors. This makes them a not an ideal institution in terms of Arizona bad credit mortgage lenders.

Another type of lender a borrower can look to for a home loan is a mortgage broker. A mortgage broker in an individual or company that specializes in home loans. Like a bank, you can get multiple loan types but, a mortgage broker is not locked into one interest rate or one lender. The broker or broker company will basically shop loans for the borrower to find the best interest rate and loan terms based on current market conditions. In addition, a mortgage broker can find loans that banks may not be able to give because the borrower or loan type is too “risky” for a traditional lending institution. This makes a mortgage broker a better choice for borrowers with bad credit.

A final type of lender that most borrowers don’t even know exists is a private lender firm. These private investment firms are run by a licensed broker who is up to date on mortgage and real estate laws, programs, and terms. The loans are funded by private investors rather than a bank. As a group of private investors, these types of lenders are more likely to look at the merit of the property as well as the potential to make money as compared to exclusively the credit score of the borrower. This makes them a good option for Arizona bad credit mortgage lenders.

As you can see, there are a few different lending options for borrowers with bad credit. If you are in the market for a home loan with a sub-prime credit score, a private investment company can be a good option. However, you need to make sure that you are using a reputable company with a proven track record. Ask about the credentials of the broker and come prepared with a list of questions to ask. Make sure that you find out about the interest rate you will be charged and be aware that it will most likely be a bit higher than what you could get at a bank with good credit. The reason your rate is higher is that you represent a higher “risk” than a prime borrower. You will pay extra for this risk but usually it is not much compared to the appreciating investment that comes from owning real estate.

You should always feel comfortable with your lending firm. Your broker or agent should be able to explain all of the terms of your loan to you clearly and also outline your monthly payments and explain any extra fees. Ask lots of questions and don’t be afraid to get second and third estimates. Finding a mortgage broker or equity firm can help you purchase a home and make the American dream your reality. 

Dennis Dahlberg
Broker/RI/CEO/MLO