Sub-prime mortgages don't mean you have to pay excessively high
interest rates to buy a home. By taking time to do some research
and pick the right terms, you can save thousands on your
mortgage. The following five tips will help you get low rates
with the right subprime lender.
Compare Lenders
The number one way to lower your interest rates on your
sub-prime mortgage is to compare lenders before you apply. It
sounds so simple, but too many homebuyers skip this step,
costing them thousands.
Plan on taking at least a day to explore your options. The
easiest way to look at financing packages is to request quotes
online. While you are requesting quotes, take a look at
conventional lenders as well. They often offer good rates and
terms for those with adverse credit histories.
Pick An ARM
Adjustable rate mortgages (ARM) offer lower rates and are easier
to qualify for than fixed rate mortgages. The drawback is that
ARM rates can increase over the years. But if you are planning
to move soon or just want to buy a home, then an ARM probably is
your best choice.
You can also convert your ARM when your credit score improves.
As property prices increase and your equity builds, you will
also be able to get better terms in the future.
Increase Your Down Payment
By increasing your down payment, you can knock off up to a
percentage point. Zero or little down financing is great for
those short on cash, but rates are significantly higher.
Ideally, you want to put down 25% to get the best rates. Just
leave enough cash reserves to financing moving expenses.
Pay A Point Or Two
Points paid upfront can also lower your interest rate. You want
to be sure though that you recoup the upfront costs. If you plan
to move or refinance in a couple of years, you will not see the
savings of lower rates.
You may also find that your money would be better spent on
increasing your down payment than on paying points. With this
type of decision, you will want to do some math with a mortgage
calculator.
Bulk Up Cash Reserves
By increasing your cash reserves, you can also improve your
credit score to qualify you for lower rates. Take advantage of
tax refunds or cash bonuses by putting them into your savings.
Lenders look at saving accounts, money markets, and CDs as cash
reserves, not stocks or other volatile assets.
About the author:
Carrie Reeder is the owner of
ABC Loan Guide, an
informational website about various types of loans. View her
recommended lenders for
Po
or Credit Mortgage Loans.
