|
Subprime Mortgage: Is It Right For You?
A subprime mortgage is often offered to consumers with a few blemishes on their credit record, but is it really the only choice left for those who don’t qualify for a mainstream mortgage? Subprime mortgages, also referred to as nonconforming mortgages, are a type of mortgage usually made out to borrowers with a lower credit rating. A credit rating of below 600 renders most consumers ineligible for conventional mortgages, since lenders view this rating as having a higher than average risk of defaulting on a loan. If you fall into this category of potential homebuyers, you’ll likely find yourself left with two options, both with their own set of pros and cons. Option 1: Take out a subprime mortgage. Deciding to go ahead and take a subprime mortgage means that you’ll be a big step closer to purchasing your own home. With the financial backing of a loan, you’ll be able to start shopping for a house and take advantage of some of the lowest home prices in history before the market stabilizes and they begin to rise again. However, taking out a subprime mortgage means that you’ll be dealing with a much higher interest rate than with a conventional loan. Charging high rates to subprime borrowers compensates the lender for carrying more risk of loan defaults. A borrower with a fantastic record of repayment on time and in full to the lender will receive what’s called an A-paper loan. As credit scores decrease, borrowers are designated to receive an A-minus, B-paper, C-paper or D-paper loan, with interest payments progressively increased for less reliable payers to allow the company to 'share the risk' of default equitably among all its borrowers. Option 2: Don’t accept a subprime mortgage. Not taking out a subprime mortgage can save you thousands of dollars in interest, but you’ll have to decide whether waiting and buying a potentially more expensive home mitigates the savings. Depending on where your credit score falls, you may be able to improve it in just a few months, making it well worth the wait, or it may take years to repair. Look carefully and practically at your financial situation, and decide where to go from there. Many credit repair tips exist, as well as professional agencies who can raise your score quickly. It may be worth it to explore some of the options available to you before jumping into a subprime mortgage. Regardless of which option you choose, Lender 411 has tips, tools and calculators to help get you into the home of your dreams! |
|
