Subprime Loans are designed for people with poor to fair credit. There are certain subprime lenders that specialize in providing mortgage and refinancing offers tailored to people with less than perfect credit. If your credit score is below 620, you would probably fall into the subprime loan category.
These subprime loans typically are offered at a higher interest rate, require more money down, and larger reserves. Rates will typically be 1% higher than rates offered to those with excellent credit, sometimes even higher. Subprime lenders require more money down so they are protected in case of borrower default. They will typically require a loan-to-value (LTV) of 80% or lower.
Reserves is cash on hand available to pay future mortgage payments. Again, to protect the lender, they want to see that the borrower has adequate savings to pay future mortgage payments. For excellent credit customers this can be as low as 3-6 months of reserves. For subprime lending this will typically be 6-12 months. They calculate it as the number of months times the principal, interest, taxes, and insurance monthly payment. Typically, only highly liquid assets are considered such as checking and savings accounts.
If you have poor credit there are also credit counseling services you can find on the Internet that will help you improve your credit scores. Often this is a good path to take. Spending up to a year repairing your credit will pay off in the long run in that you will more easily obtain approval and be offered lower interest rates, which could affect your payments for up to 40 years.
If you have a number of credit card debts built up you'll want to work hard to pay those down. You'll also need to avoid any late payments, especially on mortgage and credit card bills. These late payments adversely affect your credit score the most. A subprime lender can often help you consolidate those credit card bills into a refinance or home equity loan. This typically will reduced your monthly payment as the interest rates on mortgages are usually much lower than on credit cards and the amortization schedule is many years longer.
So, if you have less than good credit, let our loan specialists work for you in surveying our numerous subprime lenders in finding you the best mortgage. No credit rating is too bad to be considered for a mortgage. Pick an option below and we'll work to start saving you money and repairing your credit.
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