If you’ve been through bankruptcy or suffered a severe financial setback that has drastically reduced your credit score, you may think a home loan is off limits. This isn’t the case for most people, and if you already own your home, you may even be able to take advantage of a bad credit home loan to refinance. If your credit is poor or downright awful, lenders will still work with you – but you should expect to pay more than borrowers with good or great credit.
Your bad credit home loan will probably include a higher interest rate, origination fee and other costs. While it may be considered acceptable to charge higher fees in accordance with the greater risk a bad credit home loan presents, there are limits to what’s acceptable.
One of the best ways to avoid overpaying on a bad credit home loan is to shop around. Compare how much each lender intends to charge in terms of your interest rate and points you must pay to cover fees. The difference of even half a percentage point (or even less) can equate to thousands of dollars over the life of your loan.
If you’re considering a lender or broker who insists higher interest rates and fees are acceptable because nobody else will lend to you, consider that a red flag. It may take some work to find other lenders, but they are available. No one should ever feel pressured to take out a mortgage, including a bad credit home loan.