You may not have trouble finding a mortgage with bad credit, however the odds are pretty high you paid or will pay more than you need to.
What I mean is you probably COULD have negotiated a lower interest rate, possibly as much as a full 1%!
Why is this?
There are two main reasons…
Failing to Shop Loans
First, most borrowers looking for a mortgage with bad credit simply do not shop enough.
By failing to compare quotes from multiple lenders you fail to let natural competition work.
It’s amazing how many bad credit borrowers accept the first quote they receive.
If you shopped your loan with say 4 different lenders you would be surprised at how much potential room there is to lower your interest rate.
This is because most potential borrowers looking for a mortgage with bad credit simply fail to realize that their potential loan is a hot commodity. Believe it or not, most brokers love to get their hands on loans generated from motivated “bad credit” buyers.
Origination Fee – Very Negotiable
The second reason you’ll pay more for a bad credit mortgage is because you may not understand how the mortgage broker is getting paid.
There is a ton of room for negotiating – just keep repeating that…
Most mortgage brokers get paid on an origination fee. This is simply a charge for their service, which is typically 1%-2% of the loan amount. So on a $150,000 loan they’ll pocket $1500 to $3000 when the deal closes and the loan is funded. This fee is disclosed on your GFE (good faith estimate) so there is nothing secret about this fee. You should know about this long before you go to closing.
Is it negotiable?
Just politely ask the broker to lower the fee to .75% or .5% – how easy is that?
Believe me, if you are shopping your loan between a few different brokers one of them will surely budge and lower their origination fee.
Hidden Premium –
The second way a broker can make money from your loan is a bit more hidden to the borrower – you may not even know you were charged. If you’re a borrower looking for a mortgage with bad credit, don’t worry, you can easily cut this fee right out if you know how. The potential savings avoided can be astounding.
This hidden fee is motivated by pure greed, however, you can use it as a bargaining tool to get the best interest rate.
Remember…to most brokers an uninformed borrower is always welcomed with open arms!