Types of Mortgage Loans for Bad Credit

For many people obtaining mortgage loans for bad credit is the final option available for buying a house. Before entering into a high-interest home loan, borrowers should take time to conduct research and comparison shop mortgage lenders. In some cases, borrowers should work toward improving their credit scores before applying for a mortgage loan.
In addition to comparing mortgage loans for bad credit, borrowers should investigate home buying alternatives and creative finance options. These can include: entering into rent-to-own contracts or seller carry back trust deeds; applying for home buying grants and government sponsored real estate buying programs; or borrowing funds from a hard money lender.
Presently, one well-liked option for buying houses with poor credit is Home Path Mortgage. Available through Fannie Mae, this program focuses on offering bank owned foreclosure houses at substantially discounted rates. Additionally, HomePath offers a low down payment requirement of 3-percent.
Buyers of Fannie Mae foreclosure homes through the Home Path Mortgage program can obtain down payment assistance from outside sources. These can include: government grants, personal loans from family or friends, and monetary contributions from employers or charity groups.
Home buyers and real estate investors can apply for Neighborhood Stabilization Program grants offered through the Department of Housing and Urban Development. NSP grants are available to purchase bank owned properties located in areas hit hard by foreclosure. Applicants must submit NSP grant applications to designated agents. To review program details and obtain a list of NSP providers, visit HudNSPhelp.info.
Rent-to-own real estate contracts can be beneficial to buyers with bad credit. Homeowners offering lease-to-own homes typically require buyers to provide a down payment of at least 10-percent of the purchase price. A portion of rent money is contributed toward the purchase of the home. On average, buyers contribute between 10- and 50-percent of monthly rent payments towards the home purchase.
Lease-to-own home buying contracts typically last between two and five years. Buyers can sometimes lock-in the purchase price when establishing the contract. However, most sellers require buyers to purchase the home at market value once the rent-to-own contract expires. All contributed funds are deducted from the asking price.
Rent-to-own contracts should be drafted by a real estate lawyer and include legalese which protects both buyers and sellers in the event of contract default. Buyers generally lose all vested monies if they default on the contract. Therefore, careful consideration should be given when entering into this type of home buying option.
Home buyers who have previously entered into foreclosure or filed bankruptcy often find it extremely difficult to qualify for any type of home loan financing. The only option available might be hard money loans obtained through private investors.
Hard money lender real estate loans are expensive and should only be used as a last resort. Hard money loans are intended for short term use and borrowers should strive to refinance mortgages within 12 to 18 months. Most hard money lenders require down payments between 30- and 50-percent. Lenders must abide by usury laws; however, interest rates can soar upwards of 25-percent.

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