Having bad credit can seem like an
impossible situation. If you have a bad credit score, you will have trouble
qualifying for a mortgage, getting a car loan, or even obtaining a store credit
card. You may even have trouble finding a new job because many employers run
your credit score. The only way to improve your credit is to make on time
payments which is impossible if you can’t qualify for credit to make payments
on. You may feel like there is no way out. Luckily, there are programs that
allow applicants to obtain an Arizona
mortgage with bad credit. A mortgage is a great way to begin to rebuild
your credit history.
A bad credit score in terms of obtaining a home loan is
classified to be at or below about 640, but this has varied with time and
location. However, according to national credit bureaus, the average American’s
credit score is around 678, meaning that most people don’t have perfect credit.
If you have bad credit, there are a number of events that could have gotten you
there that are beyond your control. Divorce, job loss, inability to make
mortgage payments due to an over-inflated housing market, and the recent
recession are all factors that have negatively impacted may people’s credit
scores.
If you are looking for an Arizona mortgage with bad credit you are not alone. Approximately
42 million Americans have a sub-prime credit score. Don’t let your bad credit
keep you from owning a home when there are so many bad credit loan programs
available to Arizona residents.
Types of Arizona Loans for Borrowers with Bad Credit
One loan type that is available for borrowers in the market
for an Arizona mortgage with bad credit 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 second type of program that a borrower in Arizona with bad
credit might consider 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.
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.
Talk with a mortgage broker to determine the best fit for your home buying needs.
Programs and loan types are constantly evolving and
changing. A broker can help you choose the right program to fit your financial
needs.
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027
23335 N 18th Drive Suite 120
Phoenix AZ 85027
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