Subprime mortgage lenders offer loans to people with bad credit or who need more risky loans. Conventional lenders look for loans and borrowers with low risks. Conventional lenders have better rates, but suprime companies have more flexible requirements and loan terms.
easier to get into
It's easier to get a subprime mortgage than a traditional loan. Since these lenders are willing to take on more risk, they have different packages. Someone with bad credit can still get a 30-year mortgage with no down payment. You could also choose an ARM or fixed-rate home loan with a lower rate.
You might have to work with a subprime lender if you need a big loan or a loan that isn't typical. Some traditional lenders won't work with these kinds of loans because they are harder to sell on the secondary market.
Costs go up
Due to the higher risk, subprime lenders charge a higher interest rate, usually a couple of points more than a regular loan. You may also find more fees or points, especially if you want to avoid paying fees for paying off the loan early.
Conventional lenders have the best interest rates and the lowest fees. But rates and fees from different lenders vary a lot.
No matter what kind of loan you want, get quotes from a lot of different lenders. This keeps you safe from scams and companies with bad intentions and makes sure you get the best package. One of the easiest and most effective ways to save money is to find a low rate.
Don't Worry About PMI
Subprime lenders don't require private mortgage insurance (PMI), unlike traditional lenders. PMI can add more than $100 a month to your payment.
When the down payment is less than 20%, it is needed for a conventional loan. With traditional lenders, you can get around this requirement by getting two mortgages from different companies. You could also put 20% down on a conventional loan, but then get a home equity loan after the deal closes to get the rest of the money.
Just to make things more confusing, more and more conventional lenders are entering the subprime market. If you do need subprime financing, still request quotes from traditional lenders since you may still qualify.
