Who are subprime lenders?
Financial Faacts.By BOB KIEBERLike just about everything in life, we are all placed in some type of category. We are white collar, blue collar, Christian, Jew, Muslim, etc. The same is true when it comes to mortgages.
An “A” borrower is one who has good credit scores and what I like to call a boring financial history. “A” borrowers have no court required payments, bankruptcies or foreclosures. “A” borrowers have paid their bills and generally paid most if not all of their bills on time. These are borrowers whose credit scores are high because of their diligence in making sure their obligations are paid on time.Next is the sub prime category. This category includes potential borrowers who may have a bankruptcy in their recent past. They may have a foreclosure in their past. They may have federal or state tax liens in their past. Borrowers with these types of derogatory items on their respective credit reports are categorized as sub prime borrowers. In the sub prime area a borrower can be categorized as a “B” borrower all the way down to a “C” and even a “D” borrower.The lower the rating, the harder it is for a mortgage lender like me to find an investor. The one thing that all potential sub prime borrowers need to know is that the lower the rating, the higher the interest rates. If an “A” borrower receives a 5 percent mortgage a “B” borrower will get a 7 percent rate and a “C” borrower will see a 9 percent mortgage.
In addition to the higher interest rates the terms of the mortgages will differ, too. As an example an “A” borrower may want a 30-year mortgage but have no prepayment penalties if they refinance or sell the property in a year or two. A sub prime borrower will most likely have a two- or three-year prepayment penalty that precludes the borrower from refinancing the home in that period of time.If you think you may be a sub prime borrower, but you have in your plans the purchase of a home in the not too distant future, set an appointment with a mortgage lender as soon as possible. I say this as they may be able to show you ways to bring up your credit scores or rebuild your credit from a bankruptcy. I have clients who, from their hard work, have raised their credit scores 100 points in just a few short months. It can be done with some work. The situation that a sub prime borrower is in today is no reason to give up.
Knowing what needs to be done to improve the credit scores is the first step in going from a sub prime category to a prime category. A bit of work on your part may reward you with lower rates and thus lower housing costs.For answers to your mortgage related questions, call BOB KIEBER at (970) 262-1199 or e-mail him at email@example.com. Bob is a local mortgage banker and principal of Resort Lending. He has 30-plus years of professional experience in real estate, finance and investments, and is a longtime resident of the High Country.
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