Subprime lenders give money to people who are a high risk so that they can buy a home. Even though you should be aware of lenders who try to take advantage of people, you can find a mortgage loan with a fair rate by researching lenders.
Causes of Bad Credit
Make sure you really have bad credit before you sign up with a subprime lender. Your credit score is based on five things: how well you pay your bills, how long you've had credit, how much you owe, what kinds of credit you have, and how much new credit you have. Each of these factors is given a different amount of weight, so a series of late payments on one account may be balanced out by low debt, no new credit inquiries, and other factors.
You will have to use a subprime lender if your FICO score is less than 570. But if you make a big down payment, you may still be able to use a traditional mortgage lender and get lower interest rates.
Subprime loans vs. lenders who take advantage of people
Subprime lenders give real loans so that you can buy a home and pay back your loan. Predatory lenders want to take your home equity, charge you too much in interest, and take your home away.
Predatory lenders will often post links to their website on public forums to try to catch people who don't know what's going on. They will also say that they are the only ones who will lend to you or that they can fix all your credit problems. Also, watch out for lenders who insist you hire a certain contractor or real estate agent.
How to Find a Good Bad Credit Lender
Use an online mortgage broker to help you find a good subprime lender. The broker will give you quotes from a number of different lenders. Compare rates and fees to find out which ones are the best. Ask lenders if HUD has approved them. If you have bad credit, you may be able to get mortgage insurance from the government.
You should also figure out how much you can pay back each month and don't feel like you have to borrow more than that. If you're worried about your monthly payments, you might want to look into an adjustable rate mortgage (ARM). ARMs start out with low interest rates. An ARM loan is also easier to get. But with a fixed rate mortgage, you know how much your monthly payments will be for a long time.
