Subprime Loans

A subprime mortgage is designed to help those with bad credit still be able to obtain a mortgage. Those with bad credit often are unable to get a conventional mortgage or a low down payment loan through FHA or VA. Because a poor credit history makes you a higher risk for companies offering mortgages, subprime loans will often require a higher interest rate and down payment than other mortgage types.

Before applying for a subprime loan, you should examine the terms and make sure it is the right thing for you and your financial situation. One reason to go for a subprime loan is to be able to buy a home at current prices. If you already have a home but are having financial troubles, you might also consider a subprime loan. You can refinance more than what you currently owe and use the money to pay off higher rate credit cards, foreclosures, collections, and liens, or to pay for bankruptcy. Refinancing in this manner lets you clean up your credit history and start to rebuild your credit rating.

Whatever your reasons for choosing a subprime loan, you should consider the loan a short-term option. You will want to keep the loan somewhere between 2-4 years while you are working to clean up your credit. After having built your credit up to the level where you qualify for better terms, you can refinance the loan.

Before 1990, it was almost impossible to obtain a mortgage if you didnýt qualify for a conventional or FHA loan. Subprime loans changed this, and allow good people who happen to have bad credit to get a mortgage. There are a variety of legitimate reasons that could result in bad credit, such as catastrophic illness for you or your family and unexpected job loss. Mortgage companies now take some of these things into account when considering your application, though not without the price of higher interest rates.

Depending on your individual payment and credit history, interest rates may vary even among subprime loans. For obvious reasons, the higher the perceived risk from the mortgage company's point of view, the higher the interest rate will be. When determining whether you qualify for a conventional, government, or subprime loan, mortgage companies will also consider your debt to income level, employment history, type of property and assets.