Mortgages are not only for people with perfect credit histories.
Flaws are accepted within the industry, but they come at a price.
If you have had significant credit issues within the last seven
years, you will probably have to settle for a sub-prime mortgage.
Sub-prime mortgages have one particularly noticeable feature:
high interest rates. Basically, you are being charged more than
your peers because of you are considered something of a risk;
in other words, your lender is not convinced that you will make
regular mortgage payments.
For a long time, the high interest rates associated with sub-prime
loans were illegal. Only recently has their legitimacy been recognized.
While these loans can certainly be used to help people who have
been subject to hard circumstances, they can also be used by unsavory
lenders to take advantage of low-income borrowers. If you are
a sub-prime candidate, make sure that your lender has a good reputation
within your community.
With a sub-prime loan, much of your monthly mortgage payment
will be devoted to paying for the interest. Over time, the accumulation
of that interest can be staggering. For that reason, it is a good
idea to make extra mortgage payments whenever possible, and also
to refinance for a better rate once you have straightened out
your financial problems.
Of course, it would be even better to simply wait until you can
obtain a better rate. A clean credit history will help you secure
a lower interest rate, which in turn will make your mortgage payments
more reasonable. When in doubt, ask your lender for a frank assessment
of your best option.