How Do Sub Prime Mortgages Work?

What do you do when you find the perfect house and want to qualify for a mortgage? You first check to see if your finances are in order, such as having a significant amount of money for a down payment. You also make sure your credit is in good standing. Any credit score above a 620 is necessary in order to qualify for a quality loan with low-interest. But what happens when you find out your credit score is under 600? The best advice for individuals with low credit score but wish to receive a home loan, is to consider sub prime mortgages. With a sub prime loan, poor credit is not an issue. Instead of considering your credit, sub prime mortgages will look at other means that will qualify you to carry a loan. For instance, if you have a lot of cash saved up or make a reasonable income, these factors are generally enough to qualify for a sub prime home loan.

In this post we will discuss the details of sub prime lending, including what are subprime mortgages and how these types of mortgages work. After that, we will show you ways to apply for a sub prime mortgage and how to obtain a sub prime mortgage.

What are sub prime mortgages?

When we break down the phrase “sub prime mortgage”, sub prime generallymeans adequate, satisfactory or otherwise less than prime. When it refers to a mortgage, it means that generally speaking the loan is not at an ideal interest rate. However these home loans that are sub prime mortgages are specifically tailored to unique financial situations. When you want to finance a house, a sub prime mortgages acts as instant qualifier until your credit score is improved.

How do sub prime mortgages work?

Financing a home with a sub prime loan generally works the same way as a conventional loan. The only difference is that you will be working with a private lender. That is, you will be responsible to make payments towards the sub prime loan that is held by the private lender. Qualifying for a loan held by private lending is rather a simple process as sub prime mortgages are specialized for people who have credit problems.

How do I obtain a sub prime mortgage?

Compared to a conventional lending process, the process of qualifying for a sub prime mortgage is generally much simpler. You can obtain a sub prime mortgage through any private lending individual or company. It is advised to do your research and take your time when looking for a private mortgage lender. Take a look at the company’s longevity of their business, number of credentials and any customer reviews they may have.

One well-known, qualified company in Arizona that has professionals with many years of real estate experience is Level4Funding. Dennis has over 40 years experience in the housing business and can aid individual who seek sub prime mortgage. Call him at 623-582-4444 to schedule an individual consultation today.

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917

www.level4funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

Sub Prime Mortgages Arizona: Using an Adjustable Rate Mortgage to your Advantage

In recent years, subprime mortgages Arizona have earned a bad reputation. However, they can be a good option for borrowers to save on interest and insurance costs.

A sub prime mortgage is a loan given to a borrower who is considered to be a higher risk due to a poor credit score. Typically a subprime borrower has a credit score of less than 640, but this does vary. Since the lender is assuming a higher risk, the interest rate is also generally higher. Critics of subprime lending argue that it charges unfair interest rates and further burdens individuals with low incomes and high amounts of debt. However, for many individuals, sub prime mortgages Arizona are the only way they can qualify for a home loan.

The most common type of a sub prime mortgage is an adjustable rate mortgage or ARM. An ARM starts off at a low interest rate, usually lower than the prime rate around 2-3 percent. After a period of time from 1 to 5 years, the rate then adjusts to a much higher rate anywhere from 5 to 10 percent, depending on market conditions. This will cause your payment to go up rapidly. ARMs got a bad reputation during the housing crisis of the mid 2000s and were accused of being a way for banks to loan money to and take advantage of subprime borrowers. Many people lost their home due to the inability to make the new, higher payments after the rate adjusted.

Adjustable rate mortgages have been attacked by both talk news show hosts and some financial advisors who claim this type of loan is single handedly responsible for the foreclosure crisis and subsequent economic recession. This however, is too simplistic of a picture and throws the baby out with the bathwater, so to speak. While there are risks to sub prime mortgages Arizona, there are also benefits to ARMs that can be taken advantage of by both sub prime and high credit borrowers.

Benefits of an Adjustable Rate Mortgage

For many people, a traditional mortgage actually costs them money and simply does not make sense. Most people do not live in a home for 30 years, in fact the average time frame is 8 to 10 years. Even if they stay for longer, most people end up refinancing their mortgage at least once and some people refinance every 2 to 3 years. This ends up costing a significant amount in interest because in traditional home loans, you pay the majority of you interest during the first half of the loan term. Also, traditional 30 year loans charge a higher interest rate as a type of insurance for the lender. The lender assumes you will take 30 years to pay off the debt. 30 years is a long time and there is a chance that something could happen that would cause you to default. The lender charges you a higher interest rate to earn more money to keep as a type of insurance against default. The terms on an adjustable rate are only about 1 to 5 years so they can offer a lower interest rate since the term is shorter and less risky for the lender. An adjustable rate mortgage has a much lower interest rate than a traditional mortgage which can save you thousands of dollars over the loan term.

Although the rate of ARMs does adjust with time, you can always refinance to either a lower fixed rate mortgage or even another adjustable rate mortgage. Taking advantage of the lower interest rates of an ARM could save you thousands on mortgage interest, giving you more money to pay off the balance of your loan. As a result, you can pay off your home sooner and pay significantly less interest.

The most important piece of advice regarding ARMs, is to never overextend yourself. Many people bought homes that were otherwise out of their budget by taking advantage of the low interest payments offered by an ARM. Once the rate reset, they were unable to afford the home and could not refinance to a fixed rate mortgage because the home was out of their budget. Make sure that you budget for payments with an increased interest rate and buy a home that you can actually afford.

                               

Talk to a mortgage broker to determine if an adjustable rate mortgage makes sense for you.

Although there are many benefits to an ARM, there are also risks. A mortgage broker can help you navigate the ins and outs of ARMs and other sub prime mortgages Arizona. Make sure you know all of your options to help save money and make smart mortgage decisions.

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917

www.level4funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027

Arizona Real Estate: Obtaining a Subprime Mortgage Arizona

A subprime mortgage Arizona allows individuals with less than stellar credit to purchase real estate in the Grand Canyon State. Knowing the types of mortgages available will help you choose the right mortgage product and save you money.

With great weather, a stable economy, and a real estate market with great deals, it is no wonder that so many people want to move to Arizona. With some parts of the state getting over 300 days of sunshine each year and skiing in the northern part of the state, it is the perfect place for sun worshippers and snow bunnies alike. If you find yourself dreaming of moving to Arizona, but have bad credit, you will want to start researching subprime mortgage Arizona to learn about the different types of mortgages available in the state for borrowers who do not have perfect credit. If you cannot qualify for a traditional mortgage due to a low credit score, a subprime mortgage might be a good option.

A subprime mortgage is a loan given to a borrower who is considered to be a higher risk due to a poor credit score. Typically a subprime borrower has a credit score of less than 640, but this does vary. Since the lender is assuming a higher risk, the interest rate is also generally higher. Critics of subprime lending argue that it charges unfair interest rates and further burdens individuals with low incomes and high amounts of debt. However, for many individuals, a subprime mortgage, Arizona is the only way they can qualify for a home loan.

Although subprime mortgages generally charger higher interest rates, for almost 42.5 million Americans, it is the only home loan they can qualify for due to a low credit score. If you find yourself having trouble obtaining a home loan in Arizona based on your credit, do your research on sub prime mortgage Arizona to determine the type of loan programs you may be able to qualify for. Knowing the different types of subprime mortgages can help you select the right product for you and your family.

Types of Subprime Mortgages

One type of mortgage available to subprime borrowers is what is known as an adjustable rate mortgage or ARM. An ARM starts off at a low interest rate, usually lower than the prime rate around 2-3 percent. After a period of time from 1 to 5 years, the rate then adjusts to a much higher rate anywhere from 10 to 20 percent, depending on market conditions. This will cause your payment to go up rapidly. ARMs got a bad reputation during the housing crisis of the mid 2000s and were accused of being a way for banks to loan money to and take advantage of sub prime borrowers. Many people lost their home due to the inability to make the new, higher payments after the rate adjusted. An ARM can be a good option if you are in the process of rebuilding your credit and will be able to refinance to a traditional loan before your rate adjusts. It is also a good option if you are buying a short term home to either fix and flip, or you plan on moving within the low rate period.

Another program that is available to low credit borrowers is an FHA loan. This type of loan is backed by the federal government and offers low interest rates and low down payment options. The loan is insured by the government so the borrower will end up paying what is called primary mortgage insurance or PMI payments. PMI payments can range from anywhere between 80 and a few hundred dollars so it does increase your monthly mortgage payment. You will make these payments until you have paid off 20% of your home loan.

A third, less common type of subprime loan is a hard money loan. A hard money loan is offered by a group of investors, rather than a bank. It is a short term loan that is designed primarily for fix and flip houses. Since investors are offering the loan, not a bank, they are more likely to give loans to borrowers with low credit, providing they have a sound real estate investment. Hard money loans are usually short term loans and last for a couple years.

Deciding on the right loan product is essential to making your sub prime mortgage borrowing experience positive.

Talk with a mortgage broker to further discuss your loan options. You may also qualify for certain federal programs that offer down payment assistance or cash back at closing. Your credit score does not have to determine your home loan status. Stop letting a number define you and call a broker in Arizona today.

Dennis Dahlberg
Broker/RI/CEO/MLO

Level 4 Funding LLC
Tel:  (623) 582-4444 | Fax: (888) 279-6917

www.level4funding.com
NMLS 1057378 | AZMB 0923961 | MLO 1057378
23335 N 18th Drive Suite 120
Phoenix AZ 85027