FICO score: Below 580
Subprime or ‘nonprime’ lenders
These loans don’t qualify for government backing, which makes them considerably more expensive. Nonprime lender Citadel Servicing Corp. in Irvine, Calif., for example, makes fixed- and adjustable-rate mortgages for borrowers with FICO scores as low as 500. For scores of 550 and lower, rates run from 9.75% to 11.25%; market rates are hovering between 4% and 4.5%. Your rate depends on the points you pay and the size of your down payment. Down payments range from 35% to 60% of the loan amount. Here is Citadel’s rate guide (PDF).
To find a subprime mortgage, work with a broker who has earned the certified mortgage planning specialist designation. Ask for references. Watch for “bait and switch” tactics, in which you’re reeled in with an attractive offer but terms are later changed. Financial Firebird Corp., which says it tries to screen out predatory lenders, maintains a national directory of bad-credit mortgage lenders and brokers.
Pros: Mortgages are available for borrowers with scores below 580.
Cons: High down payments, high costs and difficulty locating credible lenders. Expect to pay at least 40% down, Mitchell says. That’s $160,000 on a $400,000 home, for example.