There are more than 19,000 mortgage companies in the U.S., and some of the biggest and most reputable ones focus on subprime mortgage refinancing.
Steven Frank, Senior Vice President of Marketing at FlexPoint Funding, says that a subprime borrower is someone who has a low credit score "a person whose FICO score is less than 620. He or she will pay between 1.5 and 2 percent more in interest on a mortgage, but there is no shortage of money or willing lenders in the subprime market "mortgage market.
"What do you think will happen in the market for subprime mortgages in 2006 and beyond?
Steve: From the middle of 2002 to the end of September 2005, we had the biggest refinancing boom in history. During that time, as many as 80% of people in the U.S. refinanced their homes. During the boom, interest rates on loans with variable rates dropped to less than 4%, and some homeowners chose fixed rates as low as 5%.
Now, both fixed and adjustable mortgage rates are back to around 6.5 percent. By the end of 2006, an A-grade 30-year fixed mortgage will likely cost 7 percent and a subprime mortgage will cost 9 percent. The rate of growth is more normal, between 6 and 12 percent per year. In most parts of the country, a typical house stays on the market for about six months. This means that neither buyers nor sellers have an advantage in the market.
What kind of mortgage would you suggest for people with bad credit?
Steve: Most people with bad credit won't be able to get a second mortgage or a line of credit against their home equity. If they want to cash out some of their equity, they will have to refinance their first mortgage. Depending on their situation, a homeowner may be able to borrow up to 95% LTV (loan to value). Most likely, it will be somewhere between 75% and 85%. There aren't many 125 percent LTV mortgages left, and people with bad credit won't be able to get them.
Borrowers with subprime credit should work with a company that understands their needs, looks beyond their past problems and focuses on flexible, affordable mortgage solutions.
Advice on refinancing a mortgage
Check your credit Freddie Mac, a government loan agency, says that up to 15% of subprime borrowers have credit scores that would let them get a regular loan. If you can get prime-rate mortgage refinancing, don't settle for subprime rates.
Watch how much you spend. There won't be a big difference in interest rates between subprime mortgages. However, there are some things about how the loan is set up that will affect the bottom line.
How long the loan will last: 10, 15, or 30 years. if it's a loan with a fixed rate or one with a changing rate. if you have to pay any points ( a "point" equals one percent of the loan)
What are the processing fees and closing costs?
Try to find good customer service. - A good lender will walk potential borrowers through the application process, checking their personal information and making sure they understand all the terms of the loan. The lender will also give advice on whether to lock in an interest rate during the processing phase or let the rate change until the closing.
