Bad Credit Home Loans, Arizona: How to Buy a House When Your Credit Is Less Than Perfect

Low credit scores or high debt to income ratios often hold people back from buying their dream home. If you have bad credit, you can still qualify for a bad credit home loan in Arizona and make your dreams of home ownership a reality.

If you have bad credit, it can seem like you are alone. You might have trouble qualifying for a car

loan, mortgage, credit cards, and even store accounts. It can be disheartening when you are trying to get ahead to constantly have a past mistake rear its head and to be defined by a number. Having bad credit does not mean that you are irresponsible. There are many circumstances that can lead to a low FICO score. Divorce tends to cause your credit score to decrease because your assets are split and there are often expensive court costs. One irresponsible use of a credit card in your youth can follow you around for years, making obtaining new credit almost impossible.

Although having bad credit may feel lonely, you are far from alone. According to a FICO survey, nearly 1 in 4 credit using Americans have a FICO score of less than 600. Basically there are over 42 million Americans with bad credit. As low credit scores are becoming increasingly common, a number of lenders offering bad credit home loans Arizona have been attracting borrowers with low credit scores. If you find yourself in the situation of having a low credit score, you probably think that owning a home is impossible. It is not. As long as you started to make smart financial decisions, getting a bad credit loan could be a great way to own a home and start to rebuild your credit history.

As with any type of loan, there are pros and cons to getting a bad credit loan. It is important to know and understand all of your options when it comes to types of loans you may qualify for. Below you will find an outline of a couple different types of loans that might work for you. Make sure that you also talk with a mortgage broker as programs and loan types change almost daily.

Types of Bad Credit Mortgages

One type of bad credit home loans in Arizona that is available is a hard money loan. A hard money loan is secured through a mortgage broker but is backed by investors instead of a bank. This is especially beneficial for people looking to do a fix and flip or short term purchase. Depending on the value of the property you are purchasing as well as potential for income, investors will often invest capital, even if your credit score is lower than what is ideal. Most hard money loans only last a maximum of 24 months as they are mostly designed for short term real estate investments.

Another loan type that is available for people with bad credit is a type of FHA loan. An FHA loan is backed by the government (the Federal Housing Authority) and will allow you to borrow about 96.5% of the value of the home you are purchasing. This means that you won’t have to come up with a large sum of money for a down payment. In addition, the government backing means that you will be more likely to qualify, even with less than stellar credit. One important note is that you will pay monthly insurance on your loan. In additional to you principle and interest payments, you will also pay a PMI insurance payment. This is basically extra money you pay to help insure against default. PMI payments can range from $80 to over $200 each month, depending on the amount of the loan.

A third type of home loan that may be available as a bad credit home loans in Arizona is a subprime loan. A subprime loan refers to a loan given to a borrower that represents a greater financial risk due to his/her credit score. A subprime loan is funded by a bank but does not have to meet the same underwriting guidelines as a prime loan. Subprime loans allow access to groups that would normally not have access to the credit market like people with low FICO scores. The most popular type of subprime loan is an adjustable rate mortgage or ARM. In an ARM, the initial interest rate is usually low but then adjusts after a period of time to above the prime rate. The low interest rate is usually locked in for anywhere from 2-5 years and can be as low as 2.5%. After the lock in period, the rate adjusts and can be as high as 10%. An ARM is a good option for borrowers who know they will have the credit to refinance to a traditional loan after the adjustable period or for borrowers who only intend to live in the home for a short period and sell the property before the rate adjusts.

Analyze the risks and rewards of bad credit home loans Arizona to determine which type of loan will work the best for you.

Working with a mortgage broker will give you the most loan options as mortgage brokers can shop different banks and lenders to find the best deals and programs. A broker can also make sure you know all the options available to you so that you can make an informed decisions to buy a home and start rebuilding your credit history by making on time mortgage payments.

Level 4 Funding LLC

Dennis Dahlberg, Broker/RI/CEO

NMLS 1058389 AZMB 0923961

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

Sub Prime Mortgages Arizona: Facts, Statistics, and How to Qualify

Subprime mortgages in Arizona have been considered a predatory lending practice by many law sub prime mortgages Arizona have typically been used by investors as a money making strategy, not by people who have been taken advantage of by banks.

makers. The facts show otherwise as

A subprime mortgage is a lending practice that can benefit borrowers with low credit scores. Typically, sub prime mortgages are given to borrowers with a less than stellar credit history or to borrowers with other financial factors that make them too much a liability for a traditional loan. Based on these factors, the borrowers would not qualify for a traditional mortgage so banks give them a subprime loan with a higher than average interest rate. Because subprime borrowers represent a higher risk for the lender, most lenders charge a higher than prime interest rate.

The most common type of subprime mortgages that are offered are adjustable rate mortgages or ARMs. An adjustable rate mortgage initially offers a very low interest rate, usually below the prime rate offered by a traditional loan. For an informed investor who intends to fix and flip or only own a home for a short period of time, an adjustable rate mortgage can be a great investment tool. However, an ARM is somewhat misleading to uninformed borrowers as it initially charges a lower interest rate. After the ARM period the rate adjusts to a significantly higher rate and higher monthly payment. These types of mortgages were given out frequently by banks to un-creditworthy buyers in 2005 and 2006. Once the loan reset to the higher interest rate, many borrowers were unable to afford their new monthly payments and defaulted on their home loans. ARM were largely responsible for the increase of subprime mortgage foreclosure increases in the mid-2000s.

In response to the foreclosure crisis, may law makers want to eliminate sub prime mortgages Arizona entirely. They cite these types of loans as being predatory lending practices as the interest rates can reach as high as 9% when a traditional loan hovers around 4%. They also claim that these loans are disproportionately given to people who make less than the median level of income and there is also fear that subprime mortgages could hurt minorities or young people.

Facts about Subprime Lending in Arizona

As stated above, there is concern among law makers that sub prime mortgages Arizona are designed by banks to gain the most money from groups who have the least. The foreclosures of the mid-2000s helped fuel this fire. Politicians and loan reform groups make a variety of claims about the unsavory nature of subprime lending in Arizona, however, many of these claims have been proven inaccurate when the numbers are examined.

The first claim by politicians looking to discredit subprime lending in Arizona is that it would unfairly discriminate against low income borrowers. This claim is categorically false. In fact, most subprime borrowers in Arizona are above the median income line. Most subprime mortgages tend to be second mortgages that are purchased as investment properties. Subprime borrowers also tend to own fewer low value homes than traditional mortgage holders.

A second claim against sub prime mortgages Arizona is that minority borrower will be discriminated against and only offered high interest loans. A demographic study indicates that this is untrue. By analyzing zip codes and demographics, it was concluded that subprime mortgages are not more common in zip codes with a Hispanic population concentration.

Finally, another criticism is that subprime loans are unfairly given out to borrowers who are young without a substantial credit history. Subprime mortgages are not given out to mostly young borrowers. In fact, the average age of a borrower for a sub prime mortgage was between 35 and 55 years of age. This indicates that subprime mortgages are not being used to penalize borrowers with insufficient credit history due to age.

Subprime mortgages are not being used by banks to unfairly discriminate against borrowers, rather than are a valuable tool for borrowers with low credit scores or as a means to purchase an investment property.

Since subprime mortgages often charge higher interest rates, they have unfortunately been lumped into the same category as title or payday loans. Some politicians see them as predatory practices without having all the facts.  Sub prime mortgages Arizona are not a predatory lending practice by banks. Rather they are a tool that can be used for borrowers that would otherwise not qualify for a mortgage. Whether you are purchasing a second home as investment, or buying a home for your family to live in, don’t let a low credit score determine your fate. Contact a local mortgage broker to determine your options and see if a subprime loan is a good option for you.

Level 4 Funding LLC

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com