Sub Prime Mortgages Arizona: Predatory Lending Practice or Sound Financial Strategy?

Subprime mortgages in Arizona have been considered a predatory lending practice by many law makers. The facts show otherwise as subprime mortgages Arizona have typically been used by investors as a money making strategy, not by people who have been taken advantage of by banks.

A subprime mortgage is a lending practice that can benefit borrowers with low credit scores. Typically, subprime mortgages are given to borrowers with a less than stellar credit history or to borrowers with other financial factors that make them too much a liability for a traditional loan. Usually subprime borrowers have a credit score of less than 640, which is considered a poor score. Based on these factors, the borrowers would not qualify for a traditional mortgage so banks give them a subprime loan with a higher than average interest rate. Because subprime borrowers represent a higher risk for the lender, most lenders charge a higher than prime interest rate.

The most common type of subprime mortgages that are offered are adjustable rate mortgages or ARMs. An adjustable rate mortgage initially offers a very low interest rate, usually below the prime rate offered by a traditional loan. For an informed investor who intends to fix and flip or only own a home for a short period of time, an adjustable rate mortgage can be a great investment tool. However, an ARM is somewhat misleading to uninformed borrowers as it initially charges a lower interest rate. After the ARM period the rate adjusts to a significantly higher rate and higher monthly payment. In addition, ARMs allowed borrowers to purchase homes that were too expensive for them to afford with a traditional mortgage, making it impossible for them to refinance to a fixed rate. These types of mortgages were given out frequently by banks to un-creditworthy buyers in 2005 and 2006. Once the loan reset to the higher interest rate, many borrowers were unable to afford their new monthly payments and defaulted on their home loans. ARM were largely responsible for the increase of subprime mortgage foreclosure increases in the mid-2000s.

In response to the foreclosure crisis, may law makers want to eliminate sub prime mortgages Arizona entirely. They cite these types of loans as being predatory lending practices as the interest rates can reach as high as 9% when a traditional loan hovers around 4%. They also claim that these loans are disproportionately given to people who make less than the median level of income and there is also fear that subprime mortgages could hurt minorities or young people.

Facts about Subprime Lending in Arizona

There is somewhat unfounded concern among law makers that sub prime mortgages Arizona are designed by banks to gain the most money from groups who have the least. The foreclosures of the mid-2000s helped fuel this fire. Politicians  make a variety of claims about the risks of sub prime lending in Arizona, however, many of these claims are simply not true.

The first assertion by politicians looking to discredit subprime lending in Arizona is that sub prime mortgages Arizona is that minority borrower will be discriminated against and only offered high interest loans. A demographic study indicates that this is untrue. By analyzing zip codes and demographics, it was concluded that subprime mortgages are not more common in zip codes with a Hispanic population concentration. 

A second claim against sub prime lending is that it unfairly discriminates against low income borrowers. This claim is categorically false. In fact, most subprime borrowers in Arizona are above the median income line. Most subprime mortgages tend to be second mortgages that are purchased as investment properties. Subprime borrowers also tend to own fewer low value homes than traditional mortgage holders.

Finally, another criticism is that subprime loans are unfairly given out to borrowers who are young without a substantial credit history. Subprime mortgages are not given out to mostly young borrowers. In fact, the average age of a borrower for a subprime mortgage was between 35 and 55 years of age. This indicates that subprime mortgages are not being used to penalize borrowers with insufficient credit history due to age.

Subprime mortgages are not being used by banks to unfairly discriminate against borrowers, ratherthan are a valuable tool for borrowers with low credit scores or as a means to purchase an investment property.

Since subprime mortgages often reset to higher interest rates, they have unfortunately been lumped into the same category as title or payday loans. Some politicians see them as predatory practices without having all the facts. Sub prime mortgages Arizona are a tool that can be used for borrowers that would otherwise not qualify for a mortgage. As long as the borrower is informed about the risks, a sub prime mortgage can be an invaluable tool to help them purchase a home or investment property. Contact a local mortgage broker to determine your options and see if a subprime loan is a good option for you.

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

Using an Adjustable Rate Mortgage to your Advantage

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

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, 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. Amortgage broker can help you navigate the ins and outs of ARMs and other sub prime mortgages Arizona. Make sureyou 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

How to Qualify for a Home Loan with Less than Stellar Credit

There are a variety of circumstances that can lead to a low credit score. Learn how you can get a badcredit mortgage Arizona and qualify for a home loan, even if your credit is less than perfect.

Bad credit can make you feel like a failure. Many Americans who have bad credit report feeling alone, miserable, and almost hopeless. There is a false picture of a person with bad credit that paints him as irresponsible, reckless, and even as a thief. This could not be further from the truth. There are a variety of factors that can lead to a lower credit score. Job loss, divorce, a sudden change in income, or even an old credit card you forgot about can cause your credit score to suffer. Recent statistics released from FICO Inc. show that 25% of the 170 million Americans with active credit accounts have a FICO score of less than 600. This is considered a low credit score and if you have a low score, you can have trouble getting credit cards, car loans, and even store credit accounts.

If you are one of the 42.5 million Americans with a low credit score, you probably assume that homeownership is beyond your reach. However, with new bad credit mortgage Arizona programs as well as federal programs, borrowers can qualify with low FICO scores.

As with any mortgage it is important to analyze the risks and benefits of a low credit mortgage. Once you have decided to stop letting your FICO score hold you back, it is important to know your options. Most likely you will not qualify for a bad credit mortgage through a bank, so it is important to find a reputable mortgage broker. A broker has more flexibility in terms of types of loans that can be offered so you are more likely to qualify via a broker than a bank.

Types of Bad CreditMortgages

Once you have decided to look for a home loan, you need to do your research. There are a variety of home loan programs available to people with bad credit but they all have different features. Analyzing the risks and benefits will help you choose the right program for you.

One type of loan that is available for people with bad credit is a type of FHA loan. An FHA loan is backed by the government and will allow you to borrow about 96.5% of the value of the home you are purchasing. This means that you won’t have to come up with a large chunk for a down payment. In addition, the government backing means that you will be more likely to qualify, even with less than stellar credit. You will pay monthly insurance on your loan. In addition to you principle and interest payments, you will also pay a PMI insurance payment. This will increase the amount of your monthly mortgage payments until you pay off 20% of the loan amount. You can also couple FHA loans with different federal programs that offer down payment assistance or cash back at closing like Home in 5. These programs are constantly evolving and changing, so make sure to talk with a mortgage broker about what you may qualify for.

A second type of loan is an adjustable rate mortgage or ARM. An ARM is offered to subprime borrowers who would not qualify for a traditional loan. It offers a low interest rate at first but then resets to a high interest rate after a specified period, usually 1 to 5 years. Once the rate adjusts your mortgage payment will increase due to the higher interest rate. This can be a good option if you only plan on owning the property short term or if you know you will be able to qualify to refinance your loan at the end of your low rate period.

Another type of bad credit mortgage in Arizona that is available is a hard money loan. A hard money loan is secured through a mortgage broker but is backed by investors instead of a bank. This is especially beneficial for people looking to do a fix and flip or short term purchase. Depending on the merit of the property you are purchasing as well as potential for income, investors will often invest capital, even if your credit score is lower than what is ideal. It should be noted that hard money loans are short term loans only. They cannot be used to purchase a home you plan to live in for any significant amount of time.

Make sure to know your options for home loans with bad credit.

Once you have decided to stop letting your credit score define your homeownership goals, find a broker to work with. Finding a mortgage broker that specializes in bad credit mortgage Arizona will ensure that you are receiving all the options to make owning a home a reality. 

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

Bad Credit Mortgage Arizona: Why Credit Matters

Credit does matter when it comes to lending. Similar to job history,credit proves to lending companies that you have experience in the art of borrowing. Credit history can demonstrate trust, responsibility and commitment in terms of the ability to pay back what you owe. There are many situations where you may need a loan. Especially when it comes to buying a house.

How to determine bad credit and why does it matter when it comes to purchasing a home?

According to FICO International and other popular credit bureaus, a bad credit score is any score below 640. Credit scores above 640 are considered fair, good or excellent. Once your score is above 640, the chance of being approved for a loan increases significantly.

How does your credit become poor? What activities occur that results in bad credit?

Late payments. If you are late on credit card payments, that likely will have a negative effect to your credit score. To aid, this you may want to have your bills automatically deducted from a checking or savings account. This way you will not miss a payment and there will be no negative ding to your credit score. You can be confident that you will not miss a payment.

High debt. High debt can originate from any number of things. Debt is considered high when is over 1/3 of your monthly income. When you are living paycheck to paycheck, it is hard to keep track of your credit. Your income must be high enough that you are not worried about debt payments. Furthermore you have enough income that you can comfortably afford living expenses despite the inclusion of debt.

Defaulted on previous loans. If you have defaulted on loans in the past, whether they were loans for a car, healthcare or other situation.

Business failures. It is common knowledge that most businesses fail within the first couple of years. If you have ever owned a small business, than you may likely have experience in ventures that have failed. Owning a business can be stressful and before you realize it, you have spent most of your savings keeping it going.

Having a low credit score can hinder your ability to qualify for a traditional loan. This includes any vehicle, business or property loan. As we discussed from the beginning, credit history is similar to work history. It is a proven way that lenders, like employers, can take a background look at your ability to control debt responsibly. Your credit report (i.e. work resume) describes how you manage debt accounts and whether you have made payments on time. Of course, just like a resume, a credit report does not take in effect the details of your ability to borrow. It also does not account for simple mishaps and unfortunate tragedies that may have affected your credit. 

The situations explained above are such examples of unfortunate events. Many of these situations are at times not your fault and can come to as a surprise to you. Fortunately, good credit is not the end all, be all in securing a home loan.

 Common Misconceptions of Subprime mortgage Arizona

Subprime mortgages can be very useful for people that are looking to buy a house. Without this type of mortgage finding a loan may be difficult if you are struggling with any kind of financial difficulties. Many of these financial situations are out of people’s control and unfortunately this leads to a failure to qualify for large loans, especially mortgages. Knowing this fact, it is nice to know that there are other options available like subprime lending.

Despite the obvious upsides of Subprime mortgage Arizona there are negative connotations with these types of loan. In this article we will discuss and debunk the most common misconceptions about subprime lending. Consequently we will also examine the reasons why sub prime loans are actually helpful to buyers.

Why are Subprime mortgage Arizona cast in a bad light?

1.       Subprime loans are only lent to those that can’t afford them

This is simply not true. There are many different types of lenders along with various kinds of financial backgrounds. A lot of these situations weren't simply due to the lack of a person’s income. Unfortunate situations can occur which are not under the person’s control. Situations like employment status, defaulting on a high loan or previous mortgage; even such events like natural disasters. These situations often have nothing to do with whether buyers can afford to pay off a loan. Homebuyers may likely have the funds to carry a mortgage but simply had a past that disqualified them for a bank-sponsored home loan.

2.       All sub prime mortgage borrowers have bad credit

As mentioned above, there are many different types of loan borrowers. These borrowers can have many different financial backgrounds and be in different situations. Not all sub prime lending is the cause of bad credit and vice versa. Bad credit can also be the result of past hapless circumstances. Besides bad credit, home buyers likely will have a limited credit history. A limited credit history does not mean the individual has bad credit, but rather they do not have enough proof  (or “experience) in the act of repaying a loan. This gives banks a false impression that limited credit individuals are not financially capable to hold down a mortgage. People with limited credit history could be just out of college or school. They could also be people who do not carry a lot of credit cards or simply new to credit.

3.       Sub prime lending is the result of housing foreclosures and negative property values

Subprime mortgages are not the direct cause of foreclosures or loss of property nor are they the cause for negative property values. There are many other reasons for foreclosures to happen and it is not the result of using sub prime loans to secure a home.

How are Subprime mortgage Arizona are helpful to borrowers?

1.       Gives buyers a fair chance to own a home despite unfortunate circumstances

Despite past unsavory situations like loss of unemployment, sickness, or defaulting on a large loan, it will limit a buyer’s chance of obtaining a traditional home loan. Fortunately subprime mortgages exist to help out people that are able to make payments on a mortgage but may not qualify for a typical loan.

2.       Limited credit history

As mentioned earlier, limited credit history means that you don’t have enough proof or “experience” with borrowing credit. You may be on your first credit card that is still rather new or you may never have touched credit before. Either way, to a typical financial institution, you are a high-risk borrower. The only way to alleviate this situation is to wait until your credit history matures…or you can simply consider applying for a sub prime mortgage Arizona.

3.       Self-employed or other alternative income situations

Banks prefer borrowers with a guaranteed paycheck from an employer. This is reasonable to assume but it guarantees the lender that the borrower will have money coming in every few weeks. Unfortunately if you do not have a 9-5 job with an expected paycheck, it is more difficult to get approved for a loan. Individuals that are self-employed, rely on investments or other income situations need to seek alternative sources of borrowing. 

4.       No hassle with the banks

Why get frustrated with standard banking institutions, when there are other types of lending available? Instead of bank loans, other borrowers like yourself, have chosen to deal with private lenders. Private lending offices are often more flexible and sensitive to alternative financial situations when it comes to borrowing.

At Level4Funding we can help you get approved for a Subprime mortgage Arizona. Speak with one of our friendly advisors 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