Subprime Mortgage Market

Finding a subprime mortgage is harder than it was a few years ago because the subprime mortgage market is smaller.

Many subprime mortgage lenders went out of business during the subprime mortgage crisis. Those that have survived have restricted their lending and limited their offerings. Many of the subprime mortgages available just a few years ago are no longer sold.

Despite the contraction of the subprime mortgage market it is still possible to get a subprime mortgage. It will just take longer and maybe more expensive.

Subprime Mortgages

A subprime mortgage is a real estate loan made to people who can’t qualify for a traditional prime rate mortgage. A prime rate mortgage is one on which the standard interest rate is charged. A subprime mortgage comes with a higher mortgage rate because it is designed to be issued to riskier borrowers.

The subprime mortgage market specialized in providing loans to those with bad credit and people with low incomes. Historically these people were underserved by the mortgage industry. The idea was that by giving these people mortgages they would become homeowners and better citizens.

Subprime mortgages usually come with much higher interest rates and bigger monthly payments than traditional mortgages. Many subprime mortgages had more restrictive terms for example many subprime mortgages were adjustable rate mortgages. In an adjustable rate mortgage the lender could change the interest rate.

Some other subprime mortgages waived traditional requirements such as the down payment. Many subprime mortgages were very expensive because they came with a large amount of mortgage insurance. Mortgage insurance reduces the risk the lender takes when issuing such a mortgage.

Finding a Subprime Mortgage

Subprime mortgages are still being marketed online as bad credit or poor credit mortgages. Many lenders are still wishing to issue subprime mortgages because they can be very profitable.

There are many people who can’t qualify for a prime mortgage but have the money for a mortgage. Lenders are still anxious to do business with these people because they have the money to pay a mortgage.

A person who is willing to put up a large down payment (usually around 20%) will get a better deal on a subprime mortgage. Individuals who are willing to get alternative kinds of mortgages such as Adjustable Rate Mortgages will also have an easier time in the subprime mortgage market.

Subprime Mortgage Costs

The average person should avoid the subprime mortgage market because of the high costs of such mortgages.

The only time a person should consider a subprime mortgage is when they can make a large down payment. This will enable them to get a better deal and waive some of the restrictions. Making a down payment of 20% or more can eliminate the need for mortgage insurance which can also reduce mortgage costs.