Bad Credit Home Financing - Choosing A Subprime Mortgage Lender

In the early nineties, subprime mortgages accounted for about five percent of all mortgages. Today, the subprime mortgage loan sector comprises more than twenty percent of the mortgage market. With this explosion of subprime mortgage lenders and brokers, it is important to know what to look for when choosing your lender. Not only do you want to ensure that you are getting the best deal possible for your subprime mortgage, but you also want to avoid falling prey to a predatory lender.

What makes a person a candidate for a subprime mortgage? Predominantly, it is bad credit, but there are other factors. Fluctuating income and even the type of property being purchased can also necessitate an unconventional mortgage. If your unique situation requires a subprime mortgage, consider the following when choosing your loan agent or broker:

1. Know Your Credit History: Understand your FICO score, as a score lower than 620 generally means you will be offered a subprime mortgage. However, do not assume that you must seek a subprime mortgage. Inquire about available products and have your employment, income, and payment histories readily available.

2. Evaluate Loan Offers Carefully: Do not assume that the lowest interest rate means the best loan. Most subprime mortgages will have interest rates two percentage points higher than conventional loans and may include additional fees. Ensure that all prospective subprime mortgage lenders submit their loan packages to you in writing. Analyse these offers carefully, comparing not just the interest rates but also the associated fees.

3. Be Wary of Prepayment Penalties: Subprime mortgages are often short-term solutions aimed at repairing credit or addressing specific financial situations. Hefty prepayment penalties can lock you into a subprime mortgage longer than necessary or make refinancing to a conventional mortgage costly. While you may need to accept some prepayment penalties, negotiate with lenders to secure the least burdensome terms possible.

4. Negotiate Terms: Even when seeking a subprime mortgage, you have many options. Compare loan offers from different lenders and negotiate the terms. Do not feel obligated to accept unfavourable terms; lenders often receive substantial compensation for subprime mortgages, sometimes more than for conventional ones.

While most subprime mortgage lenders are honest and responsible, regulation of subprime loans varies widely. To avoid falling victim to a predatory lender, consider the following tips:

1. Do Your Research: Do not respond to telephone or direct mail offers from subprime mortgage lenders. Utilize resources such as the Better Business Bureau, the telephone book, and the Internet. Seek referrals from friends.

2. Avoid Pressure Tactics: Request offers in writing and take ample time to compare them. Do not allow yourself to be pressured into making a hasty decision.

3. Review Documents Carefully: Do not sign any documents with blank spaces or incorrect dates. Ensure all information is complete and accurate.

4. Report Accurate Information: Do not be persuaded to inflate your income or net worth. Providing accurate information is crucial.

5. Read All Documents Thoroughly: Do not skip reading any part of your loan documents, even if the lender claims certain sections are unimportant.

Choosing a subprime mortgage lender is like any other significant purchase. The more knowledge you have and the more research and analysis you conduct, the better your decision will be.