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Sub-Prime Mortgage Loans – Five Ways To Lower Your Rates On A Sub-prime Mortgage
Subprime mortgages don’t mean you have to pay excessively high interest rates to buy a home. By taking the time to research and choose the right terms, you can save thousands of dollars on your mortgage. The following five tips will help you get low rates with the right subprime lender.
Compare lenders
The best way to lower your interest rates on your subprime mortgage is to compare lenders before applying. It sounds so simple, but too many buyers skip this step, costing them thousands of dollars.
Plan to take at least a day to explore your options. The easiest way to view financing offers is to request quotes online. While requesting quotes, also take a look at conventional lenders. They often offer good rates and terms for those with a bad credit history.
Choose an ARM
Adjustable rate mortgages (ARMs) offer lower rates and are easier to obtain than fixed rate mortgages. The downside is that ARM rates can increase over the years. But if you’re planning to move soon or just want to buy a house, an ARM is probably your best bet.
You can also convert your ARM when your credit score improves. As property prices increase and your capital grows, you may also be able to secure better terms in the future.
Increase your down payment
By increasing your down payment, you can reduce up to one percentage point. No or minimal financing is ideal for those short on cash, but the rates are significantly higher. Ideally, you want to deposit 25% to get the best rates. Leave just enough cash to fund moving expenses.
Pay a point or two
Points paid in advance can also reduce your interest rate. You want to be sure though that you recoup the initial costs. If you plan to move or refinance in a few years, you won’t see the savings from lower rates.
You may also find that your money would be better spent increasing your down payment than paying points. With this type of decision, you’ll want to do some math with a mortgage calculator.
Increase your cash reserves
By increasing your cash reserves, you can also improve your credit score to qualify for lower rates. Take advantage of tax refunds or cash bonuses by putting them into your savings. Lenders view savings accounts, money markets, and CDs as cash reserves, not stocks or other volatile assets.
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