Subprime mortgage lenders specialize in offering financing to people with poor credit or riskier loans. Conventional lenders focus on low-risk loans and borrowers. While you will find better rates with conventional lenders, suprime companies offer more flexibility in requirements and loan terms.
Easier To Qualify For
Subprime mortgages are easier to qualify for than traditional loans. Since these lenders are willing to accept a higher level of risk, they offer a variety of packages. For example, someone with bad credit can still find a zero-down 30 year mortgage. You may also opt for a lower rate with an ARM or fixed-rate home loan.
For jumbo or unconventional loans, you may have to work with a subprime lender. Since these types of loans are harder to sell to the secondary market, some conventional lenders won't handle them.
Higher Rates
For the increased level of risk, subprime lenders charge a higher rate, usually a couple points more than a conventional loan. You may also find more fees or points, especially if you want to waive early payment fees.
Conventional lenders offer the best rates and reasonable fees. However, there is a wide range in rates and fees between lenders.
No matter what type of financing you choose, request quotes from dozens of lenders. This protects you from scams and unscrupulous companies, while ensuring you get the best package. Finding a low rate is one of the easiest and biggest ways of saving yourself money.
No Worries Over PMI
Subprime lenders don't require private mortgage insurance (PMI), unlike traditional lenders. PMI can add over a hundred dollars on your monthly payment.
It is required for conventional loans when the down payment is less than 20%. You can get around this requirement with conventional lenders by taking out two mortgages from separate companies. Another option is to put 20% down on your conventional loan, but take out a home equity loan after the deal closes to access your cash.
Just to make things more confusing, more and more conventional lenders are entering the subprime market. If you do need subprime financing, still request quotes from traditional lenders since you may still qualify.
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Written By: Carrie Reeder
