Home Loans - Accredited Home Lenders – Sub-prime Loans
Why Home-buyers Consider Accredited Home Loans
Accredited home lenders are usually private financing companies that provide sub-prime loans for some kind of property (house or condo). Usually these accredited loans are attractive to borrowers whose credit ratings are poor. If you have a FICO score (read What Your Credit Score Says About You - or Bad Credit Loans) of 700 or less, you are likely to be considered a high risk borrower by the major banks and lending institutions.
If you have a poor credit score you still need to be buying real estate, but you don’t want to be flushing good money down the toilet every month by renting your home. You need to be spending $400-$2000 dollars a month on a mortgage payment, instead of a rent payment. This is why an accredited home loan can be a valid consideration.
What Do We Mean By Sub Prime?
When reading some of the accredited home loan web sites, don’t be confusing the term “sub-prime” as description for interest rates. The term sub-prime is in relation to your credit score or FICO score. In essence, this means because your FICO score between 539 and 699, you are considered to be a high risk, “sub-prime” borrower.
Why Would You Avoid An Accredited Home Loan?
The whole reason private accredited lenders provide money to consumers to buy a house, condo, or mobile home, is to make money. They make money by charging higher than normal interest rates ; at the same time their risk on the loan is greatly reduced, as they simply repossess the property and get their money back. Depending on the condition of the home, where the house is, and the value of the property in the current market, they will usually make money when the home-owners default on their payments or ultimately default on the loan all together. As usual, if you have a bad credit rating, the deck is stacked against you.
When Is An Accredited Home Loan A Good Thing?
As you well understand, a bad credit rating really frustrates your ability to be a home owner, and an accredited home loan looks like a high-interest, expensive venture, rip-off. In many ways you are accurate in that assumption, but there is a time when an accredited home loan can work for you. If the real estate market is hot where you are buying your home, you can make more money on the appreciation of the property than what you are spending on interest payments. If you have poor credit and the banks refuse all your requests for a mortgage, you would be wise to only use an accredited lender to finance your family dwelling in a hot market. If you look at what some of these sub-prime lenders charge for interest rates, home owners ought to be sure their property will increase in value by at least 7-10% each year. Make sure you crunch the numbers on the accredited financing companies offer, and the estimated appreciation of your new property. You can use our loan calculator here if you so desire.
Before Applying?
Before you ever apply for an accredited home loan, make sure you take the policy to a reputable real estate lawyer, and have them scrutinize the contents of the accredited lender’s loan aggreement for you protection. Some of these financing companies who cater to sub-prime, bad credit consumers, will have sneaky language in their documents that can lead you down the garden path. Make sure you are not being nailed with a balloon payment further down the road, or “creative” term financing, where your payments and installments grow over the duration of the loan. Your lawyer will find these problems in the contract between you and the financing company, so make sure to spend that $100-$200 bucks for a lawyer’s opinion.
Don’t enter into a loan agreement that is unfair, because these are usually long term mortgages coming in at 20-30 years. This is not a decision that you want to be making with haste. We suggest that you clean up your credit rating first, and then find a mortgage with traditional lender such as your local bank, or perhaps a major nation-wide bank.
For more information on cleaning up your credit, you can visit read what some of our credit repair partners have to say.
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