Bad Credit and Arizona Real Estate: Qualifying for a Subprime Mortgage Arizona

An Arizona subprime mortgage allows borrowers with bad credit to purchase real estate in the Grand Canyon State. Knowing the types of mortgages available will help you choose the right mortgage product and save you money.

With great weather, a stable economy, and a real estate market with great deals, it is no wonder that so many people want to move to Arizona. With some parts of the state getting over 300 days of sunshine each year and skiing in the northern part of the state, it is the perfect place people with any climate preference. The relatively low humidity also makes it ideal for people with respiratory problems and mild winters are great for snow birds. If you find yourself dreaming of moving to Arizona, but have bad credit, you will want to start researching Arizona sub prime mortgage  to learn about the different types of mortgages available in the state for borrowers with bad credit or high debt to income ratios. If you cannot qualify for a traditional mortgage due to a low credit score, a subprime mortgage might be a good option.

A subprime mortgage is a loan given to a borrower who is considered to be a higher risk due to a poor credit score. Typically a sub prime borrower has a credit score of less than 640, but this does vary. Since the lender is assuming a higher risk, the interest rate is also generally higher. Critics of subprime lending argue that it charges unfair interest rates and further burdens individuals with low incomes and high amounts of debt. However, for many individuals, a subprime mortgage,Arizona is the only way they can qualify for a home loan. There are several types of subprime mortgages available and each type has different advantages and risks. 

Although subprime mortgages generally charger higher interest rates, for almost 42.5 million Americans, it is the only home loan they can qualify for due to a low credit score. If you find yourself having trouble obtaining a home loan in Arizona based on your credit, do your research on subprime mortgage Arizona to determine the type of loan programs you may be able to qualify for. Knowing the different types of subprime mortgages can help you select the right product for you and your family.

Types of Mortgages Available to Borrowers with Bad Credit

One type of mortgage available to subprime borrowers is what is known as an adjustable rate mortgage or ARM. An ARM starts off at a low interest rate, usually lower than the prime rate around 2-3 percent. After a period of time from 1 to 5 years, the rate then adjusts to a much higher rate anywhere from 10 to 20 percent, depending on market conditions. This will cause your payment to go up rapidly. ARMs got a bad reputation during the housing crisis of the mid 2000s and were accused of being a way for banks to loan money to and take advantage of subprime borrowers. Many people lost their home due to the inability to make the new, higher payments after the rate adjusted. An ARM can be a good option if you are in the process of rebuilding your credit and will be able to refinance to a traditional loan before your rate adjusts. It is also a good option if you are buying a short term home to either fix and flip, or you plan on moving within the low rate period. An ARM is also a good option as long as you budget accordingly so you do not get priced out of your home and wind up unable to pay your mortgage.

A second, less common type of subprime loan is a hard money loan. A hard money loan is offered by a group of investors, rather than a bank. It is a short term loan that is designed primarily for fix and flip houses. Since investors are offering the loan, not a bank, they are more likely to give loans to borrowers with low credit, providing they have a sound real estate investment. Hard money loans are usually short term loans and last for a couple years. A hard money loan is a good investment but not if you are planning on living in the home for any amount of time.

Another program that is available to low credit borrowers is an FHA loan. This type of loan is backed by the federal government and offers low interest rates and low down payment options. Most FHA loans only require a 3.5% down payment which makes it a great option for borrowers without a large amount of liquid cash assets. This is also a great option for someone buying a second home who may not have the down payment they would have if they sold their first home. The loan is insured by the government so the borrower will end up paying what is called primary mortgage insurance or PMI payments. PMI payments can range from anywhere between 80 and a few hundred dollars so it does increase your monthly mortgage payment. You will make these payments until you have paid off 20% of your home loan.

Deciding on the right loan product is essential to making your sub prime borrowing experience positive.

Talk with a mortgage broker to further discuss your loan options. You may also qualify for certain federal programs that offer down payment assistance or cash back at closing. Some of these include the Home in 5 program or the Home Affordable Refinance Program (HARP). Call an Arizona mortgage broker to help get you started on your move to the Grand Canyon State. 

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917

www.level4funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027