People with low credit scores who can't get a regular loan can get money from subprime lenders. Traditional mortgage lenders like banks, credit unions, and mortgage lenders can offer subprime loans. There are also lenders who only work with mortgages for people with bad credit.
Predatory lenders charge high fees, give loans with unclear terms, and set up payments in a way that lets them take the property. People who don't know their rights in the lending process are taken advantage of by predatory lenders.
How to tell if a subprime lender is good
Rates from good subprime lenders are only a little bit higher than rates from regular lenders. They will also tell you everything you need to know about their rates and terms so you can choose wisely. Good lenders do everything the same way a regular lender does: they charge fair fees, answer all your questions, and set fair terms for prepayment.
How to Spot a Bad Lender
Avoid lenders who charge a lot for closing costs, late fees, or penalties for paying off your loan early. These lenders want to make a lot of money more than they want to help people. Watch out for lenders who want to give you more money than your home is worth, who use fake documents, or who won't tell you the rates and terms.
How to Choose the Right Lender
The best way to find the right lender is to shop around. You will not only find the best rates, but you will also feel good about your mortgage lender.
Make sure you look at all of the costs that come with closing the loan. There are a number of fees that legitimate lenders charge, such as origination, application, attorney, and other fees. You will quickly get to know them if you shop around and compare them. But if you see a list of things you don't know, make sure the lender isn't trying to scam you. Fees should only be paid for real work done.
Even after the loan is closed, you should still check your paperwork. Look out for terms that weren't made clear before you signed the loan papers. Federal law says that you have three days after the closing of the loan to back out. The lender may keep part of your application fee, but you get the rest of your money back.
