Are Subprime Mortgages Making a Comeback in 2015?
Many consumers are good borrowers that do not fit into a perfect box so non-prime mortgage loans become very appealing when subprime mortgage lenders get the flexibility they need from the banks to loosen lending standards. The mortgage industry is one that gets a lot of different opinions thrown at it, and some of them are based on inaccurate assumptions. These misconceptions may be well-intentioned, but aren't always that well informed. A perfect example is with subprime mortgages. It's true that subprime mortgages did indeed contribute a lot to the housing bubble burst of the early 2000s, that doesn't mean that they're the evil demons of the mortgage world some would believe.
In fact, some would argue that subprime mortgages are making a comeback and that for some, they could be just what is needed depending on your scenario. Taking a closer look is worth doing for anyone in the market for a new home.
First, we'll need to define subprime mortgage. This is a type of mortgage that is usually only extended to those with a low credit score – so low that they don't qualify for a traditional mortgage loan. These borrowers are associated with a higher risk of defaulting on their loan payments or on the loan as a whole, and to offset that risk they will be charged much higher interest rates than traditional mortgages.
In most cases, anyone with a credit score of less than 600 will usually end up with a non-prime mortgage as their only real option. And in the years after the housing market crash, it was even more difficult to land even these types of loans. But things are getting easier as loan restrictions are loosening up and it is becoming easier to meet the requirements for a loan.
As the restrictions begin to loosen up, more and more people may end up deciding that they want to pursue a subprime mortgage. Here's why.
- They're a great option if you have poor credit scores but are now in a solid place financially. Those who struggled in the past but have finally found their footing might find that their scores aren't high enough to get a good loan. These are good places to start.
- They can help you rebuild your credit score until you actually qualify for a better one. A few years of paying for a subprime mortgage could be a temporary option that leads to a better fixed rate mortgage in the future.
- These are also good choices for those who can't document their income through basic pay stubs. Those who are self-employed, for example, might need to use them since they will often have trouble proving regularly income – even if they do indeed earn a solid, reliable salary.
These days, these loans aren't as risky as they were a decade ago when the housing market crashed, either. The reasons are numerous. For one, they're still not just handed out to anyone. Lenders are more selective, and the odds are strong that if you can't handle these loans, you won't' qualify for it. That wasn't the case in the past. There is also more government regulation involved in subprime mortgages, helping ensure that they're better controlled than they once were.