Sub Prime Mortgage Loans

You need a home loan do you? Been to numerous lending institutions and they have all turned you down?

It is an exciting and scary time all rolled into one when you step into the real estate market. So many loan choices. Deals being offered. Slick salespeople offering you the world. So who do you trust?

Sub prime mortgage loans came on to the market to fill the gap for people who failed to meet traditional lending criteria. Where before these people had to work harder to earn a mortgage to buy a home; sub prime mortgage loans lent money to people who could never repay it.

Most sub prime lenders are independent but some conventional lenders have created sub prime mortgage loan products under affiliate company names. They do not identify themselves as sub prime lenders but their mortgage packages identify them with their higher interest rates and tougher terms and conditions.

If you can qualify for a conventional loan avoid a sub prime mortgage. When looking into what potential lenders offer, differentiate between the ones that offer only sub prime mortgages. If a lender sells both products and you don't qualify for the prime mortgage they will move you to the sub prime mortgage product.

A conventional lender will look at your credit history, employment history, assets, and the type of property you want to buy. And if the monthly mortgage payment is above 40% you may fail for a prime rate loan.

Start looking for a sub prime mortgage loan if your prime mortgage application fails. Make sure you understand all the conditions and terms of any contract you are offered. Quite often sub prime lenders offer poor terms such as high early loan pay out fees. While sub prime lenders base their rates on conventional methods (e.g. the lower the credit rating and down payment, the higher the interest rate) it is unusual to find a fixed interest rate. Shop around, get prices for several and see if you can get a better deal.

There is the good and bad of sub prime mortgages, and the worst is the interest rates can be up to 6% above the market rate. This is around $100,000 more in interest over 30 years on a $120,000 loan. On the good side you can use a sub prime mortgage loan to get you into the housing market if you are sure you can qualify to refinance at better interest rates in the first couple of years.

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