Bad Credit Mortgages: Comparing Loan Types

By Gil Mackey
Mortgage Credit Problems Columnist

Understanding what's available to you can make a big difference in getting a bad credit mortgage that fits your financial situation.

What Kind of Home Loan Can I Get With Bad Credit?

This is a common question. Many bad credit borrowers think their options will be severely limited because of their bad credit. Some of the top bad credit mortgage choices are:

• Fixed-Rate Mortgage: This home loan offers a rate that remains fixed for the duration of the loan, which could be anywhere from 10 to 50 years. Unless you plan on having bad credit for the next few decades and on keeping the house that long, this may not be the best option. On the other hand, if you're going to buy the house, file bankruptcy and you know the IRS is after you to boot, fixing your rate before your credit gets worse might not be a bad idea.
• Adjustable-Rate Mortgage: This mortgage features a lower introductory rate that may be in effect for a few months or up to ten years. When the introductory period ends, the rate may adjust up or down according to financial conditions and the terms of your loan. A typical loan is the 5/1 hybrid ARM mortgage in which the introductory period of five years is followed by 25 years in which the rate adjusts annually.
• Interest-Only Mortgage: This loan allows you the option of not making principle payments on your loan for a specified number of years, effectively lowering your payment. This can allow you to stretch your home buying budget, useful if you know you will have more income or fewer expenses in the future. Eventually, the loan does have to be recast and the payments adjusted so that the loan can be paid off. Be sure you know what your payment can increase to and be sure you will be able to afford it.
  

Consider Your Finances

If your bad credit rating is the result of a situation that you have resolved, if you can easily pay your bills and make the bad credit mortgage payments, and if you have learned to manage your money well, buying a home with a subprime loan could help you rebuild your credit and perhaps get you into a good investment. However, if you still have problems paying your bills, have saved no money, and your mortgage payment isn't going to be a piece of cake, you should consider making a few financial fixes before buying your next home with a bad credit mortgage.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelancing, he writes for his local paper, and lives with his two children in Nevada.

About the Author
Gil Mackey has been a writer and artist for the past twenty years. In addition to freelance writing, Gil writes for his local paper, and lives with his two children in Nevada.

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