Subprime Mortgage Loans
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A few years back subprime mortgage loans were almost impossible to get. You either had federal loan or conventional loan, but today things have changed.
Subprime mortgage loan industry has grown dramatically in the recent years. Most subprime mortgage loans were made in or after 1993. Today the total value of outstanding subprime mortgage loans exceeds thousands of billions of dollars.
Why did the subprime mortgage loans market flourished?
One main reason is that subprime lending is profitable if 1)the borrower repays the loan on time and 2)borrowers do not pre-pay the loan - since lenders typically price subprime loans to consumers at high rates of interest and fees than conventional loans.
Other reason is that demand from the borrowers has also increased.
Will the subprime mortgage loans market keep growing at a continued pace?
Yes, the market for subprime loans is expected to continue growing. Credit card delinquencies are rising and personal bankruptcies are at record levels, which negatively affect borrowers' credit histories, pushing more consumers into higher risk categories.
Other than the interest rates, is there anything else I should look before accepting a subprime mortgage loan?
Your lender might ask you to go for an insurance coverage for if by chance something happens to you then it might help in recovery and your near and dear ones do not get affected by result of a foreclosure.
Sometime the lenders even forces to go for the insurance and say it comes free. The fact is - it is not free. The premium is financed as part of the loan. The lender often fails to provide the borrower with prior notice about the insurance product and then rushes the borrower through the closing.
Ask before closing in details about the insurance package. Do not hesitate to know the premium terms and advantages/disadvantages. Please note that this is optional - however if your credit is really bad you have no other option but to buy the insurance - since this becomes an important criteria and not accepting it only delays the process of loan closing. Not accepting the insurance may also cause denial of the subprime mortgage loan.
My credit score is 620 - do I qualify for subprime mortgage loans or prime mortgage loans?
This is a very dicey situation. It totally depends on the loan provider. In the current loan industry this is considered the "best" among the bad credit people. But at this credit score you are definitely in a position to negotiate loan terms.
What do lenders look at before closing subprime mortgage loans?
First thing is your credit history - how you have managed to pay your bills and manage your credit in the past 2 to 5 years. Late payments that are 30 days are generally considered minor problems however 60, 90 and 120-day late payments can make you a "C" credit risk from the start.
As said earlier, if you have a credit score below 620 even with a good credit repayment history, they will place you into a higher risk category.
Other considerations are your debt to income levels. Anything over 40% of your gross monthly income will place you into a subprime mortgage loan.
If employed for less than 2 years, type of property, lack of assets, basically anything that falls outside of conventional or government lending guidelines.
So why consider subprime mortgage loans?
You have no option if your credit is poor. Secondly the interest rates are climbing down even for subprime mortgage loans. Once in the home you have an opportunity to clean your credit, re-establish new credit and ultimately refinance into a lower rate at a later time.
Remember do try to clean your credit as early as possible and then refinance into lower rate loans. So don't worry apply for a subprime mortgage loan now and refinance later.
