The first, and most visible mortgage lenders for bad credit are the sub prime institutional lenders such as certain trust companies. Borrowers with distressed, bruised, or totally destroyed credit is a large part of their market portfolio.
While all bad credit mortgages can be considered equity loans to cover off the higher risk to the lender, individuals can still have great cash flow along with bad credit and therefore can be considered to be good mortgage investment opportunities at the right price.
There are three basic elements in any lending decision with those being 1) equity in the property, 2) cash flow from income earning sources, and 3) credit. When credit has fallen too far for whatever reason, there are still going to be a significant number of situations where the other two factors are still very strong, which is right in the realm of the sub prime institutional lender.
The second category for bad credit mortgages, which is not always as visible, is the private mortgage lender.
Like, the sub prime institutional lender, the private money lenders are also interested in these strong equity and cash flow deals and directly compete against each other for them.
Their offerings can be a bit different as the sub prime lender is looking to lock you into a high interest rate for a three to five year term in more take it or leave types of programs, while the private mortgage lender is more focused on lending funds for a period of one year at a time and can be fairly flexible with respect to repayment if the borrower thinks there may be an opportunity to refinance the mortgage through a lower cost mortgage before the end of the mortgage term, or have some other form of partial or full debt retirement available to them.
There are also a segment of the private lender market that will lend strictly on the equity investment in the property and the strength of the real estate market, regardless of how bad both cash flow and credit may be. This is a smaller section of the private lending market with rates being higher to reflect the level of risk the lender is going to be faced with.
For many individuals with bad credit, both sub prime mortgage options and private mortgage options can be relevant to their situation.
Each has its pluses and minuses to consider.
The best way to not only locate the most relevant bad credit mortgage options, but to also get help making the right selection, is to work with a private mortgage broker.
If you have bad credit and want to better understand your mortgage options, I suggest that you give me a call and we’ll go over your situation and discuss the different bad credit mortgage alternatives available to you.