What is Subprime Lending?
When it comes to getting a loan, there are two main categories: prime lending and subprime lending. For the most part, prime lending means that the borrower has a good credit history, and that he or she falls within the parameters for getting a “prime” or good, interest rate on a loan. Loans that fall outside the parameters of a good interest rate are referred to as subprime. If you have poor credit, you are likely to find yourself doing subprime lending, resigning yourself to higher interest rates.
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What is the subprime lending threshold?
For the most part, people with what is known as A- credit and below are considered candidates for subprime lending. A rule of thumb is that anyone whose FICO score falls below 620 is considered higher risk and therefore likely to be charged higher interest rates for loans. However, this is not written in stone. There are people with FICO credit scores above 620 who find themselves stuck with subprime lending. This is because other factors, including the size of the down payment and the debt to income ratio, also play a part in determining the types of interest rates available.
Getting a mortgage with subprime lending
When it comes to getting a mortgage, subprime lending has opened up the housing possibilities. Prior to 1980, there was a limit as to how high the interest rate could go. Many people who had poor credit (and sometimes even fair credit) were simply denied homes. But in 1980, Congress passed a law that allowed lenders to charge higher-risk borrowers higher interest rates. This is when subprime lending came into being. In exchange for taking on larger risks to get a home loan for people with bad credit, banks charged higher interest rates. People with poor to fair credit have to pay more for their mortgages, but at least they can get them now.
Problems with subprime lending
Even though subprime lending has been very helpful to some people, it does have its problems. Some lenders are almost predatory in the rates they charge, often charging interest that is exorbitant beyond the need to cover risk. Before choosing a subprime lender, shop around for interest rates. That way you will be able to find a rate that, while still high, is not likely to be overly excessive.
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- Competitive rates and no hidden fees
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- New Purchases, Home Equity & Refinance
- One dedicated mortgage banker from first call to closing
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If you are looking for a mortgage loan but have "less than perfect credit" this company has options for people with credit problems. Complete a short form and get one dedicated mortgage banker from first call to closing with a simple, straightforward process.
Mortgage rates are still low. Refinance & Lower Your Payment!
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- America's #1 Online Lender
- Save More and Spend Less!
- No Obligation and Free Expert Advice Another Great "bad-credit" Mortgage Company! QuickenLoans is also a competitive mortgage company for people with all types of credit including poor credit. Refinance or get new mortgage offers from this reputable Web based mortgage lender.
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