Subprime Mortgage Fallout!

With so much talk about subprime mortgage fallout, it's important to understand what this could mean to anyone who either owns a home or is thinking about buying or selling. For those unaware of what subprime mortgage means, it is a mortgage granted to a borrower with less than perfect credit. In general, subprime borrowers have either missed payments on a debt or have been late with payments. When this happens, lenders charge a higher interest rate to make up for any potential losses from customers who may either run into trouble or default. In other words, because the borrower is sub prime, lenders will charge a greater interest rate to make up for the possibility of default on the loan. In contrast, "prime" borrowers are those whose credit rating is generally above 620 on the FICO scale. The people who don't rate high on the FICO score are considered subprime. In that case, their mortgage rates are anywhere from 2 to 5 % higher than those paying prime rates.

Who is Affected By Sub Prime Fallout?

Subprime loans made up 25 percent of the national mortgage market in the last three years. Those primarily affected by the subprime fallout are those people who have applications with subprime lenders that have closed their doors. As homeowners defaulted, subprime lenders that had promised investors they would buy back troubled loans cannot honor those obligations, which is why they've started shutting down. With no lender, the homebuyers are unable to close on homes that they've contracted to purchase, leaving lots of people in the fallout category.

Affects of Foreclosure

A recent study indicates that approximately one in five subprime mortgages will go into foreclosure. Unfortunately, if the foreclosure is in your neighborhood, it will impact on the value of property for everyone living nearby and even those outside of the neighborhood. As a result, sellers are becoming very competitive since there are more houses on the market, plus prices have started to come down in some areas. If you're considering buying a home, you may be able to buy your dream home for a lot less than anticipated. But you must have good credit. If you're credit isn't good, you may have a hard time qualifying for a loan.

If You Are Selling Your Home

Because subprime lenders made loans to people with poor credit, they made too many loans to those who couldn't make monthly payments. Now that lenders are tightening their standards, there are fewer borrowers who can qualify for a mortgage, which means less people will have the money to buy a home. So, if you're in the market to sell your home, you have to sell it at the right price. You may also have to be a bit more aggressive about selling your house by making improvements that make the house more attractive such as making sure your yard is pleasing to look at and the outside has a fresh coat of paint.

Getting a New Mortgage

Because of all the commotion in the sub prime market, it's critically important to find a mortgage lender that you trust. With good credit, you'll find that you're in fine shape and rates will be in your favor. In fact, right now, there's a high demand for homeowners that can make their monthly payments, so when shopping for a mortgage, get at least three rate quotes from banks and credit unions. Instead of just shopping for a lender, ask friends or associates to make a recommendation. But, remember, if it sounds too good to be true, it probably is. Getting very low rates with no money down isn't happening in today's market.

What Mortgage Specialists Claim

Due to the sub prime fallout, mortgage specialists predict that there will probably be a flood of people trying to get mini-refinancing. However, many homeowners will probably find that they can't borrow as much as they want, mostly because lenders have changed the lending criteria. In other cases homeowners won't get as high a loan because property values have dropped. And in some instances, those with subprime mortgages won't be able to refinance because they don't meet the minimum criterion. What this all means is that your credit score is going to play a very important role when it comes to applying for a home loan. In fact, a lender will carefully review your payment history when deciding whether or not to approve your application for a loan. If the lender sees a poor credit history, in all likelihood, that translates either into no loan or a larger down payment and higher interest rates on loans.

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