Subprime Mortgage

To add insult to injury, if you have had the unfortunate experience of going through foreclosure you more than likely now process a less than desirable credit score as well. Low credit scores may prevent you from getting a mortgage, but poor credit will not necessarily stop you from getting a home loan. Subprime mortgage lenders have been emerging to serve the vast population of Americans who have credit problems.

What is a Subprime Mortgage?

Typical individual credit scores range from the 300’s to mid 800’s with the average consumer maintaining a score in the 600’s and 700’s. If you are in the habit of paying your bills late you are at risk of lowering your credit score. If you tend to fall behind on bills by 30 to 90 days or more your credit score will certainly suffer. Borrowers with credit scores under 620 are usually candidates for a subprime mortgage.

If your credit score falls in under that 620 bracket you really want to do your homework with several different lenders. Unlike mortgages for people with excellent credit where rates don’t vary much, offers from lenders of subprime mortgages may differ significantly from lender to lender.

What kind of rate can I expect with a Subprime Mortgage?

Be aware that you will probably not hear the term “subprime” when talking to your lender. Lenders to do not want you to feel worse than you already do about your financial situation, and they want your business. Subprime lenders have different ways of weighing the risk of giving you a loan.

Many risk-based factors are taken in to consideration to determine the rates and terms of a subprime loan. A subprime mortgage undoubtedly has a higher rate than a prime loan but how much higher depends on factors such as credit score; size of down payment and what types of late payments the borrower has in the recent past. Late mortgage or rent payments are more scrutinized than late credit card payments.

What kind of terms can I expect with a Subprime Mortgage?

A subprime loan is more likely to be subject to a prepayment penalty. Regardless if you pay the loan off early, sell the property or refinance the high-rate loan, you could be assessed a prepayment penalty. A subprime loan may also require a balloon payment. A mortgage with a balloon payment requires the borrower to pay off the entire balance of the loan after a certain time period, often five years. If the borrower cannot pay the entire amount when the balloon payment is due, he or she must refinance the loan or sell the house.