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Subprime Mortgage Facts: 5 Things To Consider
Many people dream of owning their own home, but are held back by a less than perfect credit score. Unable to qualify for many traditional loans, they either give up entirely or turn toward seeking a subprime mortgage. Subprime lending caters to consumers who have a weak or limited credit history. Generally, borrowers who recieve subprime mortgages have a credit score below 620. During the housing boom of the 2000s, many who could have easily qualified for a traditional loan took out subprime loans, lured by intial low interest rates. Some economists blame a significant part of the resulting bust on subprime loans that were inappropriately matched to consumers due to their often much stricter repayment terms. So how can you know if a subprime mortgage is right for you? We break down the facts so that you can weigh the decision carefully and discover what path to owning a home is the correct choice. 1. Be aware that interest rates may vary wildly. Subprime interest rates are based on a variety of risk factors, including the down payment size, your credit score, number of delinquencies on your credit report, and types of delinquencies. The more black marks in existence, the higher the rate will be typically placed. 2. You can have a chance to obtain a home loan that would be unavailable otherwise. Subprime mortgages do allow many people to have a home of their own, even after being disqualified to recieve a traditional mortgage. For some, achieving the dream of homeownership makes the higher cost worthwhile. However, every case is different, and you must be sure to weigh out whether the increased financial obligation is the right choice for you. 3. Risk of default. Rarely does anyone ever intentionally default on their mortgage--it's their home that is at stake, after all. However, subprime mortgages have the highest amount of defaults among all loan types. If you lose your job or have an unexepected financial emergency, do you have a backup plan to avoid default? 4. Beware of predatory lending. Although the majority of lenders have their customers' best interest at heart, there have been accusations that some lender target minorities and inexperienced borrowers, overvaluing property, overstating income, or even muddy facts on your credit score to set higher interest rates. Some may encourage frequent refinancing in order to rolls the high closing costs into the loan. Always do your research when choosing a lender, and ask for references if you feel uncertain. 5. Prepayment penalties may exist. Subprime mortgages often have a prepayment penalty included in the terms, meaning that if you choose to pay the loan off early, you must pay extra fees. In addition, they may also have a balloon payment attached. This occurs when the remainder of the loan is due after the introductory period in one lump sum. Borrowers generally plan on refinancing at this point, but keep in mind it isn't always possible, and if it is, you can end up with much higher rates. If you still aren't sure a subprime mortgage is the right step for you, Lender411 has many resources and tools to help you decide. Keep in mind, credit repair may help you qualify for a traditional mortgage as well, or you may want to consider a joint mortgage. Whichever path you choose, Lender411 can help provide the map! |
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