Subprime mortgage lenders work with borrowers who have less than perfect credit. Though these mortgage specialists can offer solutions that may not be available through traditional lending institutions, there are a few things you should know before working with a subprime lender.
The subprime mortgage industry is growing by leaps and bounds. More and more people are having problems with bad credit and need lenders who can accommodate them. Unfortunately, not all subprime mortgage lenders are created equal. Savvy borrowers need to shop around and learn all that they can before taking out a mortgage loan. Here are three things in particular that borrowers should know about subprime mortgage lenders:
If you have bad credit, you should expect to pay a higher interest rate than the average borrower. However, you should still be able to get a rate that is fair. When shopping for a loan, you will find that the interest rates charged by subprime lenders can vary significantly. Before accepting a loan approval, make sure that you are getting the best rate available to you.
Prepayment Penalties May Apply
Subprime mortgage lenders often tack on conditions to the term of your mortgage. A common condition involves a prepayment penalty. The penalty usually applies if you wish to pay your mortgage off or refinance after a year or two. If you plan on refinancing later to save money on interest rates, you should be wary of penalties that last too long into your loan term.
Exaggerating Income is Bad
To get borrowers approved, some subprime mortgage lenders encourage the act of exaggerating income on a mortgage application. This is never a good idea, because it indicates that you can’t afford the home on your actual income. If a subprime mortgage lender asks you to exaggerate your income or changes the application after you sign it, you should seriously question their motivation.