The Attraction To SubPrime Lenders
In a situation where one has bad, or very mediocre credit, it can seem like all options are closed to oneself; so when the first chance to qualify for a mortgage loan presents itself, many people in the same situation are attracted to the subprime lending market. A borrower with bad credit, and very limited options, if any, will gladly take the route that subprime offers. Traditional, or prime lenders, generally only qualify an applicant with a credit score above a certain mark. Usually that mark is ranged around 620 on one’s credit score. A subprime lender’s major attraction is the valuable service they portray: to help those who would not otherwise qualify for a loan, manage to get one, in order to mortgage a home. They’re also very eager to help; mainly because the subprime lending market, is very profitable to the lenders, and not the borrowers.
Defining A SubPrime Lender
Generally a Subprime lender is an independent company, or company with loose ties to a mainstream mortgage lender. The trend is that more and more subprime companies are affiliating themselves with the mainstream prime mortgage lenders, in order to throw off most suspicions about whether or not their claims are genuine. Naturally, their claims are that they can assure a person, or persons, with bad or low end mediocre credit scores, and qualify them for a loan. A prime lender, offers and qualifies applicants with high end credit scores, usually above the 620 mark, for a variety of kinds of loans. Whereas as generally, subprime lenders specialize in one kind of loan in particular, and that will be discussed later on. Many prime lenders do have subprime divisions, that offer those types of loans, and even though these lenders do share a company name with the mainstream traditional lenders, they can be just as financially destructive as an independent subprime lending company. SubPrime lenders are at a much higher rate, because of their availability.
Locating A SubPrime Lender
Generally, one does not need to even search for one. Subprime lenders implement many forms of advertising to the social crowd who would be attracted to the more convenient, and easily available loans. And if a person could not find, or locate a subprime company, either through a prime or mainstream lender, there are plenty of outlets, and sources available with which to find one, should a person decide to take that route; although subprime loans are firmly advised against, by general society. The Internet especially is overflowing with subprime offers and schemes. The Internet is an especially good environment for these companies to advertise, because of the intangibility, and open interest. The Internet is the best search resource for a borrower to find a lender. The convenience that subprime lenders offer is usually one of the most attractive traits that the service offers. Most application procedures take mere minutes for approval, and at the most, a week. Whereas a prime lender, needs to take time to verify the information given by a more “qualified applicant.”
Subprime lenders also utilize a form of locating customers, called “steering.” They advertise target locations; usually areas with a population consisting mostly of minorities, and low income families. From there, they “dangle the carrot” or so to speak, in front of people they automatically assume have low income, low or bad credit. The problems with this, are that not all of the people targeted with “steering”, have bad credit. A percentage may have passable credit, or a perfectly documented financial histories. It’s almost an insult to a community, when the subprime advertising and soliciting begins; because it builds on the assumption that the people within the local area are both uninformed, and financially unstable.
The SubPrime Scam
First time buyers especially, should proceed with caution, when applying for any lender. Even mainstream lenders have their pitfalls and bad reputations. When applying for your first home loan, before even considering submitting an application to an independent, or affiliated subprime lender, always, regardless of one’s misgivings, apply for a prime loan. If a person with bad, or low credit does not qualify, it is not the end of the world, nor is it an automatic incentive to use a subprime lender branch, or independent. A borrower has lost nothing by trying to qualify for a prime loan. For instance, if a borrower with low end mediocre credit, perhaps at, or a few points below the general 620 credit score, applies for a single family home loan, has a well documented financial past, and has passable tax and insurance escrow, there is a fair chance that the individual will qualify for a prime loan.
What makes a subprime lender scam slip so unnoticed through the cracks of recognition, is the unfortunate fact that the majority of subprime lenders affiliated with mainstream and prime lenders, is that they implement either similar, or the same rates and fees used by the mainstream prime lenders that they’re affiliated with. When the affiliated subprime lender shares both name, rates, fees, with the mainstream prime lenders, it begins looking more and more trustworthy to the borrower in the market for a more easily acquired loan. One should never be fooled by the outward similarity of costs. The most typically implemented schemes are of course, unmentioned out-of-pocket fees, that are not mentioned, deliberately, until after the closing, advertising incredibly low fees, and taking advantage of the fluctuating interest rates. The most popular scheme comes in the form of a mortgage plan; the 2/28 ARM, or Adjustable Rate Mortgage, a term heard often, on television, radio, everywhere. For the first two years, the rate is fixed, and then suddenly, at the end of the two year market, the rate raises sharply. Why? At the end of the period, the rate is reset to be equivalent with the current market index, and then a margin is also added. The most frightening prospect of this, is that the market index does fluctuate, and usually it increases.
Avoid paying ridiculous rates. If at all possible, consult a professional broker. For your one’s own security, try to abstain from acting on the advice of other non-professionals, even if it is a friend. Because the rates are great, while one is in that two year period. Afterward, you might not escape. Always contact several lenders, and one should always have several quotes to compare, on hand. Never settle for the first lender to offer you a deal. If it sounds too good, it usually is.