Credit issues A big part of the market for mortgages is second mortgages. A recent survey by the Mortgage Bankers Association found that the number of second mortgages and closed-end second mortgages both went up by 13 percent in the second half of 2005. The survey looked at 114 lenders who gave out $189 billion in second mortgages, many of them to people with bad credit.
At least five numbers affect how much a second mortgage with bad credit will cost in the end: the interest rate, the number of years on the job, the credit score, the closing costs, and the length of the term.
Rates of interest
Because it comes after the first mortgage, the interest rate on a second mortgage is a little bit higher. If the borrower doesn't pay and the house goes into foreclosure, the second mortgage is paid off after the first, so the lender is taking on more risk.
Steven Frank, Senior VP at FlexPoint Funding, one of the country's largest subprime mortgage bankers, says that the interest rate on a second mortgage for people with bad credit will be even higher. "Someone with a FICO score of less than 62 has bad credit. For a second mortgage, the person will pay between 1.5 and 2% more in interest, but there is no shortage of money or willing lenders in the bad credit market "ortgage market."
"History of Work"
When considering a second mortgage for someone with bad credit, lenders look at how well the borrower can pay back the loan. This can be proven by looking at the person's job and total income. Mortgage lenders like it when borrowers have been working at the same place for at least two years or have been in the same line of work for several years.
Score on credit report
The lender will also check to see how the borrower has handled money in the past. This is where a credit report and credit score come in. A credit report shows what a person has done with their credit over the last few years. It shows each account's highest balance, current balance, and history of payments. After a few years, negative information like late or missed payments is taken off the report, but a bankruptcy can stay there for up to ten years.
Credit scores, which are also called FICO scores, go from 900 to 300. A good credit score is anything over 680. Most mortgage lenders will look at a borrower more closely if their score is between 620 and 680. If the number is less than 620, as Mr. Franks says, the person has bad credit and has to pay more for a second mortgage because of it.
Costs of closing.
When you get a second mortgage with bad credit, the closing costs will be less than when you refinance your first mortgage. Some lenders may charge an up-front fee in the form of a percentage of the total loan amount on top of small processing fees (known as "points"). A borrower might also be able to lower the interest rate on the loan by paying points.
How long is the term?
The longer a second mortgage with bad credit is, the less the monthly payments are, but the more interest is paid in total. The shorter the second mortgage, the lower the total costs, but the higher the monthly payments will be. It is in the best interest of the borrower to choose the shortest term that he or she can afford.
At www.badcreditsecondmortgagenow.com, you can find out more about second mortgages and get a free quote.
