When you buy a home with a sub-prime mortgage, you don't have to pay very high interest rates. You can save thousands on your mortgage if you take the time to do some research and choose the right terms. The five tips below will help you find the right subprime lender with low rates.
Compare Lenders
Comparing lenders before you apply for a subprime mortgage is the best way to get a lower interest rate. It sounds so easy, but too many people skip this step, which costs them tens of thousands of dollars.
Plan to take at least a day to think about what you can do. Online quotes are the easiest way to look at different financing plans. While you are getting quotes, you should also look at traditional lenders. Even if you have bad credit, they often have good rates and terms for you.
Pick An ARM
Fixed-rate mortgages are easier to get and have lower rates than adjustable-rate mortgages (ARMs). ARM rates can go up over time, which is a bad thing. But if you want to buy a home or plan to move soon, an ARM is probably the best choice.
Your ARM can also be changed if your credit score goes up. As the value of your home goes up and your equity grows, you will also be able to get better terms.
Make a bigger down payment.
You can save up to a percentage point by putting down more money. Financing with no or little down payment is great for people who are short on cash, but the rates are much higher. To get the best rates, you should put down at least 25%. Just save enough money to cover the costs of moving.
Pay One or Two Points
Your interest rate can also go down if you pay points up front. But you want to make sure that you get back the money you spent up front. If you are planning to move or refinance in a few years, you won't save money from lower rates.
You might also find that it would be better to use your money to put more money down on the house than to pay points. For this kind of choice, you will want to use a mortgage calculator to do some math.
Get more cash on hand.
You can also improve your credit score and get lower rates if you have more cash on hand. If you get a tax refund or a cash bonus, put the money into savings. Lenders look at savings accounts, money markets, and certificates of deposit (CDs) as cash reserves, not stocks or other volatile assets.
