Subprime Loan
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Subprime loans are not just for people with less than perfect credit. While many subprime loans are used for people with not such good credit, many are also used for creative financing, unique situations, and for loans that dont meet traditional conforming guidelines (conforming loans are generally for people with good credit).Because "subprime" is another word for "non conforming" financing anything that does not conform to Government Sponsored Entities (GSE's)lending guidelines, such as those for FNMA and FMHLC, fall into this category. Although credit may be the first indicator to some how a loan is underwritten or graded, other important factors play part too, such as loan amount. The FNMA conforming loan limit for 2006 is $417,000. If your property is in California where the average home value could be as high as $490,000, you will never be able to qualify for conforming financing without splitting the loan into two balances, thus splitting up the risk for the investors. Loans over the conforming loan limits are commonly called "jumbo" and "super-jumbo" loans, and sometimes even "luxury" home loans. All of these types of loans fit into lending perimeters of non-conforming and subprime financing, sometimes also referred to as "niche" lending.
Sub-prime, or sometimes refered to as non-prime, lenders are often the source for loans that are secured by non-warrantable condominiums and cooperatives. Non-warrantable condos and coops are projects that do not meet the criteria set by Fannie Mae and Freddie Mac and therefore the mortgages secured by these type of condos and coops are not eligible to be delivered to FNMA and FHLMC. Sub-prime mortgages are sold to investors who do not have such criteria.
Subprime loans are also known to close faster than their counterparts. These loans are often the first choice of borrowers who are in situations where they need fast closings.
Subprime loans are able to close faster because the underwriting guidelines are not as strict as conventional lenders. Looser guidelines allow for faster closings. Where a conventional lender may require two years worth of a verification of rent, by a management company, the subprime lenders may allow you to have a twelve month VOR from a private party. It is little things like this that may require you to go subprime for the time being.
Non prime loans will also allow you to purchase a home immediately after bankruptcy, after a foreclosure, allow collections, disregard consumer credit lates or many other options that you may not be aware. If there are any questions please contact us for your consultation.
Sometimes the subprime market will offer up better interest rates for a borrowers unique situation, than could be achieved applying for a mortgage with a prime(AAA) lender, Even if the borrower is not considered to be subprime.
Subprime loans are also referred to as nonconforming loans, because they do not conform to standards set forth by Fannie Mae or Freddie Mac, the two largest purchasers of mortgage backed securities.
There is a wide range when it comes to the interest rates of sub prime lenders. It is your mortgage brokers job to shop your loan to multiple sub prime lenders and obtain the best deal for you. Most sub prime loans are written as 2 or 3 year ARMS.
There are many different sub-prime programs available. There is much more flexibility on documentation required. A good example is a VOR (Verification of Rent), may not be required using certain subprime lenders. This makes it easy to finance someone that can't verify their rental history. There are many more examples of subprime programs!
Many times an experienced mortgage professional can qualify a traditionally subprime borrower for conventional or "prime" financing. This can be done by properly documenting assets, doing some credit repair, or by utilizing various automated underwriting systems. Contact an experienced mortgage professional to review your financing options.