what's the difference sub-prime loan vs not sub-prime?

Question

I'm looking into buying a townhouse or condo, but wondering about getting a loan. I know I should look around, but I don't know where to start? My friends have a guy that is working with them to get a loan, I think he's an independent guy. Should I see what he can do for me, or would just asking him mean I have to use him in the end? What about my bank? Would they give me a deal because I have my checking & savings accounts with them? Also, I've been told to avoid sup-prime lenders. Who is a sub-prime lender, and what are the pitfalls to getting a sub-prime loan, and how do I avoid them? I'm sure there are other lending groups out there, but how do I find them? Any help would be appreciated.

Answer 1

You have a subprime loan if your credit history is so POOR that you cannot otherwise QUALIFY for a CONVENTIONAL loan.....this means that you are a high-risk borrower and will be penalized as a result. Any loan that is non-conforming to allow you a lower payment, e.g. interest only-products, adjustable rate mortgages are typically sub-prime loans. A prime loan is one that has a conforming loan to value (i.e. borrower puts in 20% as downpayment) and P&I payments. If you cannot get this kind of loan then the only loans available to you will be sub-prime loans which are for high-risk credits.

Answer 2

I work with a national bank that does mortgages and credit advisory consulting. We do loans in all 50 states and we work very closely with our clients to make sure they are getting the "right" deal.

That being said, the difference between working with a sub-prime company and a conforming company relies mostly on your personal credit. If you have good credit (650 score or better) you can consider yourself in line to work with a "non-sub-prime" or "conforming" lender. However, if your credit isn't so great you can pretty much guarantee that your adviser will take you through a "non-conforming" or "sub-prime" lender. Either way, you need to have a plan of attack when you refinance your home.

Know what your interest rate is currently and know what it will be when you sign on the dotted line for the new loan. Also, take a look at the type of loan you're being offered. See if its a fixed loan, an adjustable loan or even a pay-option ARM. These are all different kinds of loans that can typically make or break someone depending on whether or not they know how to benefit from them.

Also, banks don't really consider your checking and savings account unless you have really strong credit. We have lenders that we broker to that allow us a .15% discount if someone opens up an account at that bank but they are far and few between. If you need help shoot me an email. I would love the opportunity to work with you.

Answer 3

I work for a mortgage lender (not specifically sub prime but we offer those loans as well). My clients are mortgage brokers and bankers as well. I don't deal directly with the general public such as yourself so I'll give you my unbiased opinion. Without knowing your specific situation it's hard to give you a specific answer.

Mortgage brokers are able to shop your loan with various lenders. Instead of you filling out multiple applications around town you can let them do everything for you. If you have good credit, job history, and cash in the bank, you'll receive a competitive rate from wherever you go these days. If you have dings in your credit (mortgage lates or sub 620 mid fico score) you have no choice but a sub prime lender.

Although sub prime lenders are receiving a lot of negative press don't let it deter you from purchasing your home. Just remember your home is your home, not an investment. Don't buy something you can't afford.

I honestly believe there is no pitfall in obtaining a sub prime loan if you are in a situation that requires one. Sub prime lenders generally have higher interest rates and prepayment penalties. However, if you are in that boat there isn't much you can do except improve your credit rating or put more money down.

Obtain copies of your credit report from the three major reporting agencies (Equifax, Experian and Trans Union). Locate your mid score and calculate income based on your paystub. Call the independent broker or your bank and provide that info. Request a "good faith estimate" (GFE) which spells out all their fees. Whoever has the lowest APR (not rate) wins.

Answer 4

If you have a real estate agent, see who they would trust. I would be very weary of going to a broker because many times all they add are fees. I would try using an actual lender and not a broker. The first place I would start if I were you would be your local housing authority. I'm not sure where you live, but in Connecticut, if you go through an approved lender through the local housing authority you can get an interest rate at 1% below the market and borrower money for closing costs and down payment assistance.

As far as subprime goes, that really is something you want to avoid. If a lender tells you that all you qualify for is a subprime loan, then I would talk to him or her about what you need to do to fix up your credit first.

Answer 5

Your best bet is try all of the different options. Pending on your credit worthiness different institutions can help you in different ways.

A sub prime lender is most of the time going to be the small brokerage store you see everywhere. Unless you have terrible credit definitely avoid them.

My suggestion would be to go ahead and try your friends person, your bank, and one of your own sources. Make sure that you are dealing with a direct lender as they will be able to give you the best pricing. You can have your credit pulled a few times within a couple weeks without taking a credit score hit everytime your credit is pulled as long as it is by a mortgage instution.

Ask all three places for a Good Faith Estimate and go with the best pricing.

If you have any further questions my email address is [e-mail].

I am the Operations Manager of a small direct lender located in Michigan and Florida. We work in most states so if you need any assistance at all please feel free to email me. Even if we dont service your state I would be more than happy to go over your Good Faith Estiimates with you.

Answer 6

I found this article today, check it out!

"Families Losing Their Homes in the Subprime Mortgage"