Subprime mortgage loans are made for people who can't get "A" rated loans, usually because their FICO score is less than 650. They also work with people who want different terms, like a jumbo loan. Like with any other type of loan, you need to compare mortgage loan offers to find the best one.
Who Can Get a Subprime Loan?
Anyone, no matter what their credit history is, can get a sub-prime loan. People with great credit may still choose to work with a subprime lender to get better terms.
When it comes to mortgage loans, sub-prime lenders don't decline applications. Instead, they give you terms that you can agree to or not agree to.
For example, a person who just got out of bankruptcy could go to a sub-prime lender the next day and ask for a mortgage. The lender would probably charge interest rates that are 12% higher than normal and ask for a 50% down payment. You can either take out the loan or wait two years until the terms are much better.
What Sub-Prime Lenders Offer?
In addition to being flexible with terms, sub-prime lenders offer rates that are close to those of conventional lenders. For every drop in credit grade, subprime lenders charge 1 to 2 percent more than standard rates. But a bad credit history can be made up for by a large cash reserve or a large down payment.
Subprime lenders don't require private mortgage insurance, which can save you a lot of money if you don't plan to put down at least 20%. Lenders also let you refinance your mortgage, which can save you money on closing costs in the future.
Who gives out loans with bad terms?
People with bad credit used to only be able to get mortgages from lenders who didn't follow the rules. But now, almost all banks and other lenders offer subprime loans. You still need to work with a sub-prime lender if you have the worst credit.
To find the right sub-prime loan, you should look at what different companies have to offer. You can work with an online mortgage broker to compare quotes in just a few minutes, or you can go straight to lender sites.
When you ask for an estimate of a loan, give as much information as you can, like your credit score. But if you don't want your credit score to go down, don't let the possible lender look at your credit report. Only let the most likely lead see your report so they can finish the loan application.
