Nearly one fourth of all Americans with active credit accounts have bad credit. As a result, they are labeled as subprime borrowers for home loans, car loans, and credit cards. With a credit score below 640, they have a hard time qualifying for credit opportunities. If you find yourself in this position, you probably believe that homeownership and real estate investing are beyond your reach. This is not true. There are certain bad credit home loans Arizona programs that can allow you to purchase a home to live in or as an investment, even with bad credit.

The most common type of loan that allows bad credit borrowers to purchase a home is an adjustable rate mortgage (ARM). An adjustable rate mortgage offers a low interest rate at first for a specified period of time, usually 1 to 7 years. At the end of the term, the rate resets to a higher interest rate and the payments increase. The rates usually start out at less than 3% so it is easier for borrowers with bad credit or high debt to income ratios to qualify. The reset can climb above 5% so it is important to be strategic if you are using an ARM. An ARM makes sense for bad credit home loans Arizona if you are unable to qualify for a traditional loan but you are improving your credit. Making on time payments can help rebuild your credit so that you can qualify for a traditional loan when your rate resets. In addition, an ARM makes sense as a short term investment strategy if you plan on selling the home before the rate resets.

The most important thing to remember with an adjustable rate mortgage is to live within your means. You may qualify for a more expensive house than you could afford with a traditional mortgage. Once the rate resets you will be unable to refinance and might have to go the route of short sale or foreclosure. This hurts your credit score and is what gave Arizona bad credit mortgage loans  a bad reputation. Make sure that you do not overextend your budget and buy more home than you can reasonably afford.

Arizona Bad Credit Loans and Investing

While an adjustable rate mortgage can be an invaluable tool for home ownership, there is a lesser known investment strategy called hard money lending. Hard money lending a type of loan practice that is designed specifically for real estate investments. It is secured by a mortgage broker but backed by an investor or group of investors instead of a bank. The loan is for a short period of time, usually a few months to about 4 years. The goal of the loan is a true investment, for everyone involved to make money.

In order to get a hard money loan, you need to work with a mortgage broker. You would determine a property that you wish to purchase that is a sound investment. Typically these are fix and flip type houses that can build equity quickly. Once you have a property in mind, your broker will connect with a hard money investor or investment team. The investors will examine the merit of the property and the money making potential. They will use this information to determine whether or not they want to invest their capital.

Since a hard money loan is backed by investors, they are more likely to give loans to individuals with bad credit. Instead of only looking at numbers, the investors look at the potential for the property to make money and don’t focus solely on the credit score of the borrower. Once the borrower has renovated the property and sells it, the investors make back their money plus a certain amount of interest. The borrower also makes money on the investment so it is a win/win situation.

A hard money loan can be a valuable tool for bad credit mortgage loans Arizona investing and can help individuals with bad credit take advantage of the many benefits of investing in real estate.

An Arizona mortgage broker can help you decide what bad credit home loans Arizona program best fits your needs. A broker will review your financial situation and long term and short term goals to determine what mortgage product is best for you.

Dennis Dahlberg
Broker/RI/CEO/MLO