Are Mortgage Loans For Bad Credit Worth The Cost?

If you are looking for home mortgage and you have a poor credit history or a low credit score you may be wondering are mortgage loans for bad credit worth the cost. This depends upon several factors but having a poor credit score doesn’t necessarily mean that you will automatically get screwed by any lender that you come across with a loan application. It does mean that you’ll have to pay more attention when you apply for credit, to the terms, the interest rate and other factors. These days for mortgages bad credit is more of an issue than it used to be, because of the economy, but not an impossible task.

If you are renting and you can afford the mortgage payment you may think that no matter what a mortgage is worth it because right now you are paying someone else for your home, when you could be paying on a home that you own. However, if you would save half of your interest by waiting a few years when the economy was better, or when your credit score allowed you to get a better interest rate on a mortgage then it is worth waiting. Repairing your credit from an extremely poor state to a decent to good state will typically take three to five years and if you can wait that long for your mortgage it is worth it to do so.

Let’s take a look at some typical mortgage loans with bad credit and find out just exactly how much it will cost you to pursue mortgages with bad credit as opposed to a good credit rating. For mortgage loans bad credit will typically decide how much interest you pay. For instance, John Q. has a credit score of 550 and he wants to get a mortgage. Two lenders are working to lend John the money. The first is offering John a 6.5% interest rate if he can get his score up to 650, while the first is willing to lend John the money now with a 7.5 % interest rate.

In both cases John is going to put down 10% of the cost of the home, which happens to be $200,000. Also, John is going for a 30 year mortgage in both cases. If John were to go with the lender who is willing to finance the home right now, he would pay $453,092.40. If he were to wait a year and go with the lender with the lower interest rate then he would end up paying $409,579.20. So, by simply waiting a year and working on his credit he would save $50,000 with only a 1 percent difference in the interest rate.

Think of this example in the difference between 9.5% and 6.5%. There are many factors that affect your interest rate but if you ask if improving your credit would adjust the interest rate you are being offered and by how much, then it may be well worth it to wait a year, two years or even five years to buy your home. Not only will this give you time to fix your credit and get a much lower interest rate, but it will also allow you to save up a more substantial down payment, which will affect not only your chances of being approved, but how much money you end up paying in the long run as well.