How to Get a Subprime Mortgage
What it is
| At a Glance | |
|---|---|
| Loan Type: | Mortgage |
| Lender: | Bank |
| Secured: | Yes |
A subprime mortgage is a mortgage for borrowers who cannot qualify for prime financing terms because of a low credit score. Borrowers will be accepted or denied based upon credit score, the ratio of total expense to income including debt payments, and ability to document income and assets. Other factors include the purpose of the mortgage and the property type. Subprime lenders base rates and fees on the same factors as prime lenders. The interest rate is negatively correlated with the borrower's credit score and down payment. The entire structure of rates and fees is generally higher for subprime loans, in order to cover the greater risk and higher costs of subprime lending.
Who it's for
A subprime mortgage is for people who may not be able to obtain credit elsewhere, but require a loan that has an interest rate lower than prime in order to qualify for the mortgage they require. This is for people who expect to make more money in future years, who are just starting out after college or university, or who are young professionals. People who can afford prime mortgages should not try and obtain a subprime mortgage. There are more restrictions and charges.
What you need to do to apply
In order to obtain a subprime mortgage, interested applicants will need to contact a local lending institution and inquire about the different options and rates available. Personal and financial history, including a credit report, will need to be made available to the lending institution. A property appraisal may also be required.