Credit and debt counseling has become a booming business over the last few decades..
For many people, their most important dream is to own a home...
If you have amassed a rocky credit history and if you are burdened with a low credit score


What is Subprime Lending?

If you have a bad credit history, you may think that you have been locked out of the ability to obtain any kind of loan or financing.  In fact, in this day and age there are more opportunities available to people with bad credit who are interested in obtaining a loan or financing.  Through this article, you will learn the basics of subprime lending.

What are Subprime Loans?

Subprime loans are loans for people with bad credit. It’s an industry that is growing quickly, and has helped many people buy homes that normally would not have had the chance. Mortgage companies do this by scaling the interest rates higher according to the risk of the applicant and size of a down payment. The poorer the credit and the smaller the initial investment by the buyer, the higher the interest rate one would pay.

Do Your Homework

Unfortunately, predatory lending falls into the category of subprime lending, and laws have been passed to regulate or eliminate loans that carry fees so high they can’t be paid. They have even been accused of targeting minorities and minority neighborhoods. Franklin Raines, CEO of Fannie Mae, recently made the statement, “Done right, subprime lending provides an important source of mortgage financing for families with imperfect financial or credit histories. Done wrong, subprime lending is a huge rip-off that siphons wealth — and hope — from people who have very little to begin with.” For instance, one type of loan in the subprime market is the 2/28 ARM. This loan is fixed for two years then rises, sometimes unreasonably and well beyond a borrower’s ability to pay.


 


Recent Trends in Regard to Subprime Lending and Loans

However, although the loans come with higher interest, ethical subprime lenders have opened up opportunities for more people than ever before to own homes, and more quickly than they would have thought possible. Although default rates have been typically high, they are improving as the ethical subprime lenders’ methods improve and mature.

Who is Right for a Subprime Loan?

Some still will not be able to get even a subprime loan, however. People with credit scores from 620 to 640 are the usual targets for subprime loans, and applicants with credit scores below 620 will likely not be able to get even a subprime loan without a huge down payment.

Check All of Your Options

Before committing to a high-interest subprime loan, check out other options. Avoid dealing with companies that have to advertise their loan products in neighborhood flyers. Many mainstream mortgage lenders now offer subprime loans, so there is no need to work with companies of unknown—or poor—repute. Even if they charge a little higher fee, you are in much better hands.

Summary

So don’t think you have to be a victim of unscrupulous subprime lenders because they might tell you there is no other way for you to own a home. Throw away the flyers, ignore the telemarketers and advertisers, and go to a reputable, major lender.