you have bad credit, you may not qualify for a conventional
loan or low down payment loans offered by FHA and VA.
In this case, you may consider a subprime mortgage.
Because of the higher risk associated with lending to
borrowers that have a poor credit history, subprime
loans typically require a larger down payment and a
higher interest rate.
You should study the specific terms of a subprime
loan that you qualify for to determine if it is a loan
that will help your financial situation. Subprime loans
are one way for you to get into the home you want at
today's price. If you already own a home, a subprime
loan can give you an opportunity to clean up your credit
and ultimately refinance into a lower rate at a later
time. If you have a mortgage, you can look at refinancing
more than what you currently owe on the house and get
cash back for the equity you already have in the home.
This cash out could be used to pay off higher rate credit
cards, bankruptcy, foreclosure or collections and liens.
It could be a good way to clean up a troubled credit
history, save money each month and start rebuilding
your credit worthiness.
Whether for a purchase or refinance, subprime loans
should typically be used as a short term solution, approximately
2-4 years. During that time, you can work to clean up
your credit and qualify or a refinance into a lower
risk, lower rate loan.
Prior to 1990 it was very difficult for anyone to
obtain a mortgage if they did not qualify for a conventional,
FHA or VA loan. Subprime loans were developed to help
higher risk borrowers obtain a mortgage. Many borrowers
with bad credit are good people who honestly intended
to pay their bills on time. Catastrophic events such
as the loss of a job or a family illness can lead to
missed or late payments or even foreclosure and bankruptcy.
Now there are mortgage companies that take into consideration
events outside the borrower's control, but not without
Lenders are compensated for risk in the form of interest
rates. The higher the lender perceived its risk to be,
the higher the rate they will charge for the privilege
of borrowing their money. The lower the risk, the lower
the rate. Several risk factors are taken into consideration
when evaluating a borrower for a subprime mortgage,
the most important being your payment and credit history.
Your debt to income level, employment history, type
of property and assets are other factors that are taken
into consideration when determining if you qualify for
a conventional, government or subprime loan.