Subprime Mortgages

Subprime mortage is not really the exact term, we should talk more broadly as Subprime lending (also second-chance lending, near-prime, and/or non-prime) in finance means making loans that are in the riskiest category of consumer loans and are typically sold in a separate market from prime loans. The standards for determining risk categories refer to:

• the size of the loan,
• “traditional” or “nontraditional” structure of the loan,
• borrower credit rating,
• ratio of borrower debt to income or assets,
• ratio of loan to value or collateral,
• documentation provided on those loans which do not meet Fannie Mae or Freddie Mac underwriting guidelines for prime mortgages (are “non-conforming”).

Although there is no single, standard definition, in the United States subprime mortgages or subprime loans are usually classified as those where the borrower has a FICO score below 640. Subprime lending encompasses a variety of credit types, including mortgages, auto loans, and credit cards.

The term was popularized by the media during the “credit crunch” of 2007.

It sounds terrible: Subprime Mortgage . But in reality it has many different benefits that other loans do not. A subprime loan typically has a higher interest rate than other loans because the people who need it usually have a poor credit history or very low credit score. These high interest loans do make people pay a lot more for a house they want but actually have some benefits.

There are many financial institutions that specifically deal with subprime lenders. This means they know how to help those with poor credit. Some banks also offer prime and subprime mortgages because they know their community well and some areas just don’t have the types of jobs that prime mortgages will need to ensure their monthly payments. It can be embarrassing to go to a local bank if you live in a relatively small town so you may want to choose a subprime only lender.

A good benefit of a subprime mortgage is that you don’t have to take the time to raise your credit score. This can take years of payments and credit building and many people just don’t have the time for all of that. They realize they made some late payments here and there but are past that and want to own a home. Not everyone with bad credit got it by not paying their bills on time. Many times, wives and husbands who are irresponsible can annihilate their significant other’s credit and even after divorce, it’s still bad. A subprime mortgage to many people is a chance for a new beginning.

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