Securing Mortgage Loans with Bad Credit: Even 100% Financing is Not Impossible

The belief that a poor credit rating is sufficient to kill off any chance of securing a small loan has been dispelled with the multitude of approvals given to applicants every year. But even with such renewed confidence, there remains considerable hesitation in applying for 100% mortgage loans with bad credit scores a factor.But it is not impossible to get 100% financing to buy a new home if a subprime lender is approached. Such lenders make it their business to offer loans to those who have low credit scores and are unlikely to be accepted by the mainstream lending institutions. In this sense, they are the best option for securing loan approval.There are both positives and negatives to opting for a subprime lender, with the advantage of being able to secure 100% mortgage loan to buy a property to the disadvantage that paying higher rates of interest can create. However, with the right knowledge, it is possible to assess accurately the true cost of any mortgage and so work out the best deal.The Positives to Such a DealIn borrowing 100% of the price of a new property, without using a down payment to lessen the load, there is no doubt that the size of the debt can be huge. But a by securing such mortgage loans with bad credit, the situation is made particularly worse.For a start, the very fact that down payment is avoided means that meeting the monthly repayments of the mortgage is more manageable. While a down payment can help in securing loan approval, even a 5% down payment can be around $15,000, depending on the price of the home. But this could instead be used to handle the first 6 or 8 repayments, or even to cover settling in and legal costs.Also, by taking on a mortgage loan that is 100% of the value of the home, borrowers can avoid paying private mortgage insurance, something that is considered a major financial drain and, in reality, means nothing.The Negatives of Such a DealAmongst the disadvantages of applying for a 100% mortgage loan with bad credit, is that the size of the monthly repayments will be significantly higher. Subprime lenders are taking on a big risk by trusting such borrowers and they balance that fact by charging a higher interest rate. What this means is that the borrowers faces the maximum repayments.For example, securing loan approval on a property costing $250,000 might normally require a down payment of 10%, reducing the mortgage to $225,000. The monthly repayments over 30 years may be as much as $850 per month. But on a 100% loan, with extra interest to pay, those repayments can be as high as $1,000 over the same period.What this means is that the actual sum repaid can be very high, in fact as much as $400,000 on a $250,000 property over 30 years. So, the mortgage loan can prove very costly indeed.Alternative Borrowing OptionsThere are ways around the financial drain of taking out a 100% mortgage loan, with bad credit not necessarily spoiling the availability of alternatives. For example, while full funding can be secured, it could be split 80% mortgage and 20% personal loan.This is known as a piggyback mortgage, and can result in a smaller interest rate on the larger share, making it more manageable to repay. Securing loan approval for this structure is easier than getting a full 100% loan.The smaller share of the mortgage loan does have a higher interest rate, which means that the cost can be increased. Still, when a sizable down payment is difficult to get, this can be a viable solution.