Having good credit is your passport to getting mortgage loan
s in prime rates. The logic is simple: your credit tells of your risk as a borrower. That means if you have a high credit score, you are more likely a responsible credit payor and therefore are more likely to pay back the money you will owe. So, the higher your credit rating is, the lower the interest rate your lender will give you on a home loan, vice versa.
What happens to your chances of getting a home loan, then, if you have scored lower than the prime limit? The most likely scenario would be the denial of your loan application. However, this does not mean you cannot get a home loan anywhere else.
Enter the subprime market.
Although many lenders have developed the strategic convenience of sugarcoating this term, subprime is subprime. That means offering you high-risk loans (due to your low credit score) to allow you to still get the home loan you need. However, to compensate for this risk, you will have to carry higher interest rates.
Subprime loans can be scary, especially if you are already cash-strapped. That is why it is encouraged that you exhaust your financing options first before getting into the subprime zone, especially if your intent is to buy a home. But if subprime is your only option left, it is important that you know the full nature of what you are dealing with.
How is subprime mortgage different from regular mortgages?
You might find the qualifications and requirements different in subprime than in their prime counterparts but differences can vary from lender to lender. They can be more or less stringent – it’s important that you keep an eye on predatory offers.
– Interest rate is usually higher in subprime
– Subprime mortgage loans are more likely structured as adjustable than fixed
– It’s harder to get your loan approved with prime
– Predatory scams are more common in subprime
What should be my credit score to be considered risky?
650 is usually considered a limit. Anything below this threshold is already considered high-risk. In FICO, a score of 720 to 850 is a sure key to getting the best mortgage rates. However, limits could fluctuate from time to time due to many unprecedented market pressures.
Your credit score, however, is not the only determining factor that can affect rates. The risk is assessed based on other factors such as debt-to-income ratio and job stability.
How do I apply for a subprime mortgage?
The steps and processes of getting a subprime mortgage is more or less the same with that of a traditional prime home loan. You need to fill out an application and forward the necessary documents for assessment. The lender will look at your income status, your credit, DTI, and other financial statement.
There are ways to ensure an approval, especially if your credit is looking unconfidently helpful:
- Put in a down payment, if possible.
- Show good payment history. It could be the case that a single change in your financial situation caused the damage in your credit profile. Showing the lender the cause of your rating and some documentations that demonstrate your responsible credit practices could be helpful in getting that approval.
- Improve your credit before applying. Before you rush, make some efforts to at least improve your credit score a bit, either by paying dues on time or at least not taking out any other loans.
Find trustworthy people to deal with. It is not unknown that the subprime market is laden with traps and scams. Don’t fall into deception. Do your research and background checks before applying.