What is a Subprime Mortgage?
When dealing with mortgages it may be hard to find one that you are truly happy with. That is why you need to know all your options and how you can get the best mortgage possible. Today we will learn a bit about subprime mortgages and how they can work for you. The more you know about all types of mortgages, the more effective mortgage you will be able to get.
Defining Subprime Mortgages
When you go to get your credit score you will notice that it most likely falls between 300 and 900. It you are like most people, however, you will find that your score falls in the 600 to 700 range. Is your score lower than 620? Well, if it is then you have just entered into subprime territory.
Now you may not actually hear the lenders refer to this as subprime though, because it may be thought of as a negative description. Non-prime, or no referral at all will be more common. It is so important that you shop around during any mortgage process. The importance of shopping is enhanced however when you are in subprime territory. The offers you receive from lenders will differ. Each lender has a different way of assessing your risk, and will grade you accordingly. So shop around!
How Does Subprime Differ?
Subprime mortgage loans will have a higher rate than other mortgage loans. This is because of the risk pricing (which was touched on earlier). But like everything else, credit score, down payment and credit history will play a role on exactly how much of a rate you will pay.
Subprime loans may also have extra aspects thrown into the process. One of those things can be a prepayment penalty. If you pay off the loan early, then you will be charged some sort of fee. They do not want you to pay off early because they like the interest that they will be receiving. You would think that paying off your loan early will appease them, but it does just the opposite. You may also find that there will be a balloon payment. This requires that the borrower will have to pay off the outstanding amount of the loan in a lump sum once a certain time period has passed. If you cannot pay the rest of the loan at that point then you will need to refinance or sell the house.
Because subprime mortgages come with lower credit scores you need to make sure you are not taken advantage of. You might not have much to say because your credit is bad and you will not have many options, but you still can make sure that you are not treated poorly. That is why you need to get an idea of what everyone is going to offer you for a mortgage. Make the choice that helps you and work for you the best.
