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Maryland Home Search: Subprime Loans
If you have bad credit, you may not
qualify for a conventional loan or low
down payment
loans offered by FHA and VA. In this case, you may
consider a subprime
mortgage. Because of the higher risk
associated with lending to borrowers that have a poor
credit history, subprime loans typically require a
larger down payment and a higher
interest rate.
You should study the specific terms of a subprime loan
that you qualify for to determine if it is a loan that
will help your financial situation. Subprime loans are
one way for you to get into the home you want at today's
price. If you already own a home, a subprime loan can
give you an opportunity to clean up your credit and
ultimately refinance into a lower rate at a later time.
If you have a mortgage, you can look at
refinancing more
than what you currently owe on the house and get cash
back for the
equity you already have in the home. This
cash out could be used to pay off higher rate credit
cards, bankruptcy, foreclosure or collections and liens.
It could be a good way to clean up a troubled credit
history, save money each month and start rebuilding your
credit worthiness.
Whether for a purchase or refinance, subprime loans
should typically be used as a short term solution,
approximately 2-4 years. During that time, you can work
to clean up your credit and qualify or a refinance into
a lower risk, lower rate loan.
Prior to 1990 it was very difficult for anyone to obtain
a mortgage if they did not qualify for a conventional,
FHA or VA loan. Subprime loans were developed to help
higher risk borrowers obtain a mortgage. Many borrowers
with bad credit are good people who honestly intended to
pay their bills on time. Catastrophic events such as the
loss of a job or a family illness can lead to missed or
late payments or even foreclosure and bankruptcy. Now
there are mortgage companies that take into
consideration events outside the borrower's control, but
not without a price.
Lenders are compensated for risk in the form of interest
rates. The higher the lender perceived its risk to be,
the higher the rate they will charge for the privilege
of borrowing their money. The lower the risk, the lower
the rate. Several risk factors are taken into
consideration when evaluating a borrower for a subprime
mortgage, the most important being your payment and
credit history.
Your debt to income level, employment history, type of
property and assets are other factors that are taken
into consideration when determining if you qualify for a
conventional, government or subprime loan.
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