Subprime Mortgage Arizona: History and Legislation Effecting the Home Mortgage Market

Subprimelending has been the target of many law makers who believe that it represents a predatory lending practice and is unfairly biased against minorities. Knowing the facts about subprime mortgages can help consumers make an informed choice when shopping for home loans.

A subprime mortgage (also referred to as near-prime, non-prime, and a second chance loan) refers to the practice of lending money to borrowers with a low FICO score. Typically a subprime borrower has a credit score less than 640, butthis has varied throughout history.

The most common type of subprime lending is an adjustable rate mortgage or ARM. 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. 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.

Another type of subprime mortgage is a hard money loan. A hard money loan is secured through a mortgage broker but is backed by investors instead of a bank. 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. However, most hard money loans are short term loans and not designed for the purchase of a home that you will own for more than a few months.

Since the recession and housing market crash and subsequent foreclosure boom between 2007 and 2009, subprime mortgage Arizona has become the target of concerned law makers and citizens. Many legislators view subprime lending as predatory lending practice that unfairly penalizes minorities and the poor. They equate subprime mortgage Arizona lending practices with title loans and payday loans. While it is true that subprime loans generally tend to have higher interest rates, they are the same type of loans of opportunity that payday and title loans are. When used responsibly, subprime loans can be a valuable tool for buyers with bad credit scores.

Subprime Lending: Myths and Facts

The first claim by politicians looking to discredit subprime lending in Arizona is that it would unfairly discriminate 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.

 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.

A second claim against subprime mortgage 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.

There is little empirical evidence that subprime lending is detrimental to the lending marketin general or to specific groups of people.

In fact, subprime lending can help allow access into the mortgage credit market for borrowers that would otherwise not qualify for a home loan. If you find yourself struggling to qualify for a mortgage, research your options with subprime mortgage Arizona. Find a broker that can guide you through the process of qualifying to purchase your first home.

Level 4 Funding LLC

Dennis Dahlberg, Broker/RI/CEO

NMLS 1058389 AZMB 0923961

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

Subprime Mortgage Arizona: Home Loans Available to Borrowers with Bad Credit

A subprime mortgage,Arizona is one type of home loan that is available to Arizona borrowers with a low FICO score. Learn all the details of subprime lending to determine the right loan for your unique credit situation.

Many potential homeowners with low FICO scores find themselves denied by banks when they try to qualify for a mortgage. Nearly 1 in 4 Americans have a FICO score of less than 640 which is considered to be a subprime credit score. With a subprime score it can be difficult to qualify for a traditional home loan. However, there are other options available for a subprime mortgage Arizona. Certain loan types and programs can help borrowers with low credit scores qualify for a home loan.

One loan type that is available for subprime borrowers is a bad credit FHA loan. An FHA loan is backed by the Federal Housing Authority 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 sum of money for a down payment. In addition, the government backing means that you will be more likely to qualify, even with less than stellar credit. This is because the government helps secure the loan for the bank in case of default. One important note is that you will pay monthly insurance on your loan. In additional to you principle and interest payments, you will also pay a PMI insurance payment. This is basically extra money you pay to help insure against default. PMI payments can range from $80 to over $200 each month, depending on the amount of the loan.

A second type of loan available to borrower with bad credit is a subprime mortgage Arizona. A subprime loan refers to a loan given to a borrower that represents a greater financial risk due to his/her credit score. A subprime loan is funded by a bank but does not have to meet the same underwriting guidelines as a prime loan. Subprime loans allow access to groups that would normally not have access to the credit market like people with low FICO scores. The most popular type of subprime loan is an adjustable rate mortgage or ARM. In an ARM, the initial interest rate is usually low but then adjusts after a period of time to above the prime rate. The low interest rate is usually locked in for anywhere from 2-5 years and can be as low as 2.5%. After the lock in period, the rate adjusts and can be as high as 10%. An ARM is a good option for borrowers who know they will have the credit to refinance to a traditional loan after the adjustable period or for borrowers who only intend to live in the home for a short period and sell the property before the rate adjusts.

Bad Press and Subprime Mortgages

Although a subprime mortgage can be a valuable tool in helping secure a home loan, many borrowers shy away from them due to recent negative press. Specifically, in Arizona, many politicians have gone as far as to label subprime mortgages as predatory lending practices. They claim that subprime loans are designed to charge high interest rates for people who cannot afford them.  Proponents of subprime mortgage Arizona programs claim that subprime loans allow individuals access into the home marker who would otherwise be shut out due to credit history.

So, who is right? Is a subprime loan a predatory tool used by banks, or is it a legitimate loan program to help bad credit borrowers?

One argument made by politicians looking to discredit subprime lending in Arizona is that it unfairly discriminates against low income borrowers. This is simply not true, 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 own fewer low value homes than traditional mortgage holders.

A second claim against subprime mortgage 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.

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.

When you examine the numbers, it becomes apparent that a subprime mortgage is not used by lenders to make money from the lower class.

Rather, a subprime mortgage is a tool that can help individuals with bad credit access the home buying market. If your credit score is less than 640, don’t lose hope. Contact a mortgage broker to discuss your subprime and non-traditional loan options.

Level 4 Funding LLC

Dennis Dahlberg, Broker/RI/CEO

NMLS 1058389 AZMB 0923961

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com

Sub Prime Mortgages Arizona: Facts, Statistics, and How to Qualify

Subprime mortgages in Arizona have been considered a predatory lending practice by many law sub prime mortgages Arizona have typically been used by investors as a money making strategy, not by people who have been taken advantage of by banks.

makers. The facts show otherwise as

A subprime mortgage is a lending practice that can benefit borrowers with low credit scores. Typically, sub prime 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. 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. 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

As stated above, there is 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 and loan reform groups make a variety of claims about the unsavory nature of subprime lending in Arizona, however, many of these claims have been proven inaccurate when the numbers are examined.

The first claim by politicians looking to discredit subprime lending in Arizona is that it would unfairly discriminate 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.

A second claim against 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.

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 sub prime 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, rather than are a valuable tool for borrowers with low credit scores or as a means to purchase an investment property.

Since subprime mortgages often charge 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 not a predatory lending practice by banks. Rather they are a tool that can be used for borrowers that would otherwise not qualify for a mortgage. Whether you are purchasing a second home as investment, or buying a home for your family to live in, don’t let a low credit score determine your fate. Contact a local mortgage broker to determine your options and see if a subprime loan is a good option for you.

Level 4 Funding LLC

23335 N 18^th Drive Suite 120

Phoenix AZ 85027

623-582-4444

www.Level4Funding.com