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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 be sure that you are getting the best deal possible for your subprime mortgage, you also want to know how to avoid falling prey to a predatory lender.

What makes a person a candidate for a subprime mortgage? Bad credit is the predominant reason but there are others. Fluctuating income and even the type of property being purchased can also necessitate an unconventional mortgage. If your unique situation requires a subprime mortgage do the following when choosing your loan agent or broker.

Know your credit history, particularly your FICO score. A score lower than 620 generally means that you will be offered a subprime mortgage. Do not take for granted that you must seek a subprime mortgage. Ask what products are available for you. Also, make sure you have your employment, income and payment histories readily available.

Do not assume that getting the lowest interest rate also means you are getting the best loan. Most subprime mortgage loans will be two percentage points higher than a conventional loan and may have additional fees. All of the prospective subprime mortgage lenders should submit their loan packages to you in writing. Take the time to carefully analyze all of the mortgage offers. Compare not just the interest rates but also the fees you are being charged.

Be wary of prepayment penalties. A subprime mortgage is a vehicle for repairing your credit or responding to a specific applicant situation and usually is a short term solution. Hefty prepayment penalties may lock you into a subprime mortgage for a longer term than is necessary or cause you to


pay a substantial price for refinancing to a conventional mortgage at a later date. You may have to accept some sort of prepayment penalty but negotiate with the various lenders to guarantee you have the least burdensome penalty possible.

Even though you are looking for a subprime mortgage lender you still have many options. After comparing the loan offers from the different lenders, negotiate the terms. Do not feel that a lender is doing you a favor by offering you a subprime mortgage. Many times the compensation a lender receives for a subprime mortgage is greater than that which is received for a conventional mortgage.

Most subprime mortgage lenders are honest and responsible business people. Still, the regulation of subprime loans varies widely and you should be careful not to fall victim to a predatory lender.

1. Don't respond to telephone or direct mail offers from subprime mortgage lenders. Do your own research. The Better Business Bureau, the telephone book and the Internet are all good resources. Ask friends for referrals.

2. Don't allow yourself to be pressured. Ask for offers in writing and use plenty of time to compare them.

3. Don't sign any documents that have blank spaces or incorrect dates.

4. Don't be convinced to inflate your income or net worth.

5. Don't skip reading any portion of your loan documents because your lender tells you "that part isn't important".

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

About the author:

Carrie Reeder is the owner of www.abcloanguide.com, an informational website about various types of loans. View her recommended lenders for Ba d Credit Mortgage Loans.