Subprime lenders provide a valuable service. Their goal is help those with bad credit and no credit get approved for a home loan. While most subprime lenders are eager to help, it is important to discern lenders that are trying to take advantage of your situation.
What are Subprime Lenders?
In a nutshell, subprime lenders approve mortgage loans to people whom traditional mortgage companies consider undesirable candidates. To get a loan through a mortgage company, bank, or credit union, applicants must have a good credit score, down payment, and the ability to pay closing costs. Whereas many traditional lenders have begun to offer subprime loans, a home buyer may obtain more loan options by using a lender that specializes in subprime loans.
How to Locate a Subprime Lender?
Subprime lenders can be found in any area. For your convenience, you may locate a subprime lender online. Many online home loan companies offer bad credit mortgages to all types of people. Moreover, the application process is simple. Usually, responses are received within a few minutes.
Tricks and Schemes Used by Some Subprime Lenders
Individuals purchasing their first home should proceed with caution. If using a subprime lender, beware of shady lenders. Lender tricks are common. Unfortunately, many unsuspecting buyers fall prey to these schemes. Typical schemes involve lenders advertising unrealistic lowball offers to get clients in the door. If it sounds too good to be true, it probably is.
Additionally, some lenders fail to mention certain fees until closing. Hence, homebuyers must pay unexpected out-of-pocket expenses. Furthermore, some lenders take advantage of fluctuating interest rates. If mortgage rates decline before your loan rate is locked, the lender should decrease your quoted rate. However, some lenders keep rates the same. To avoid this, homebuyers should study the market.
How to Avoid Lender Scams
The best way to avoid a lender's scam is not to accept the first offer you obtain, and request quotes from several lenders. If possible, work with a reputable mortgage broker. Brokers have dealings with various trustworthy subprime lenders. The objective is to provide homebuyers will numerous offers from prospective lenders. Once receiving quotes, you have the power to choose the most attractive subprime loan.
Subprime Mortgage Lenders List
Your Credit History
A poor credit history doesn't have to send you running to sub-prime lenders. For one, you may still qualify for an A loan, reserved for people with good credit. If your bankruptcy was four or more years ago and you have established a good payment history since then, your FICO score is probably over 600, the requirement for an A loan.
Through FHA loan programs, you can apply for a loan after two years of a bankruptcy or foreclosure. VA loans also look more leniently on past credit problems. In the end, don't assume that because you have an adverse credit history you have to apply for the higher interest sub-prime loans.
If you find that you do have bad credit, you can still work with a traditional lender, who may offer you better interest rates. As financing companies expand their financing options, more and more companies are adding services for B, C, and D loans.
Sub-prime mortgages are based partly on your credit history, but largely on your mortgage or rent payment history. You will want to provide proof of your rent payments by sending copies of your rent receipts or checks. Mortgage payments can be verified through your credit report.
Sub-prime mortgages are just short term financing options. Once you have improved your credit history, you can refinance your mortgage for better rates.
When you start your search for a sub-prime lender, include all lenders in your investigation. Request quotes from traditional lenders as well as those who specialize in poor credit financing. Compare everyone's financing packages to find the best rates and terms.
Ideally, you want to find a low APR with no prepayment fees. Unless you plan to keep your mortgage for seven or more years, it is probably not worth paying points for lower rates. You may also find that an ARM will provide lower rates with more buying power than a fixed rate mortgage.
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