Subprime Mortgage Lenders - Helpful Tips When Getting A Subprime Mortgage Loan

If you have bad credit history, no down payment or difficult to prove income and are looking to get approved for a home mortgage loan, you will probably need to look at subprime mortgage lenders to help you. To see a list of our recommended subprime mortgage lenders you can click on the link below.

There are a few things to know about subprime mortgages lenders. They specialize in providing mortgage loans for people with less than ideal situations, whether it be difficult to prove income, low or poor credit scores (most often the case with subprime mortgages), or no down payment (this factor alone will not necessarily put you in the subprime loan category).

The interest rate on a subprime mortgage loans will be higher than any other type of mortgage loan where credit, income and down payment are all optimal. However, with subprime mortgage loans, as a borrower, you need to be careful about a few things when dealing with subprime mortgage lenders.

The interest rate with subprime mortgages can vary greatly. There are some subprime mortgage lenders that, for the same set of qualifications, can offer an interest rate of say, 7%, which is a little above average, and then there will be others who will quote 9-12% or more. Now, if this is all for the same qualifications, you could be talking about hundreds of dollars a month extra in payments just because you are not getting a fair interest rate for your qualification. This is where the borrower needs to be careful. Make sure you are getting the best interest rate possible with your subprime lender. Some subprime lenders take advantage of borrowers with bad credit or hard to approve situations, and they charge much more in interest than what is fair for to the borrower.

Another way subprime mortgage lenders can take advantage of unsuspecting borrowers is by the lender having a pre-payment penalty on the loan that is unreasonable and not fair to the borrower, based on their qualifications. A typical subprime mortgage loan will have a 6 month to a 2 year pre-payment penalty. However, sometimes a subprime lender will offer a loan with a 3 year or higher pre-payment penalty. That is too high, I think a 2 year pre-payment penalty is high, but any higher than that, and you should probably keep looking for a new lender.

Other than a couple of things to be careful of when dealing with subprime lenders, getting approved, even with a slightly higher interest rate, can be a really great thing for you to buy the home you want.

The Truth About Mortgage Loans

When you close on a new mortgage, your loan papers state the interest rate you will be paying for your loan. But is that interest rate really as good as it looks? Out of your monthly payment that you faithfully make each month, do you know how much of that amount is actually going towards interest?

During the signing of your loan papers, you might have noticed a large sum being disclosed (about three times the size of your mortgage) which indicates the amount of interest and principal you would be paying over the life of your loan?

For example, if you have a 30-year fixed loan for $100,000, over 30 years, you would have paid approximately $300,000 to your lender. Only 1/3 of that money is actually what you borrowed. The majority of your hard earned money is actually interest payments.

To verify this for yourself, take your current monthly payment that you make to your lender, (principal and interest only) and multiply it by 360 for a 30-year loan and you'll see the total payments your lender would receive over 30-years.

That huge sum of money in interest is going to someone else. It is money that should be working for you and building you wealth. Do you really want to work three decades to give your lender such a large chunk of your hard earned money?

Here's another tidbit of information that is even more important. How often do you move? In America, the average person moves every 7 years. I don't know about you but when most people move into a new house, they get a new mortgage and go right back to payments where 90% of the amount is going towards interest. If you are average, you'll probably never pay off a house in your lifetime unless you become aware of how money works. And one of these days, it may be too late.

Think of it like this. If you have a 30-year fixed, $100,000 mortgage at 7% interest and you move after 5 years, you will still owe 94% of your original loan or $94,000. Of the thousands of dollars you have paid over 5 years, you will only have reduced the principal by $6,000 because most of your payment for the first 5 years goes towards interest. After 10 years of payments, (120 payments) you'd still owe about 86% of your mortgage balance. It takes literally 20-25 years of mortgage payments just to reach the 50% mark.

If you are one of those people who are not prepaying a mortgage because it is your last tax shelter, think about what you are really doing. You are paying a dollar of interest to get back 28 cents in tax deductions (or whatever your tax rate is). This is called "negative cash flow."

Another reason I hear for hanging onto a mortgage is that people would rather use the money to invest and get a greater return. First of all, this is not an apples to apples comparison as one is a guaranteed rate of return and the other is not. There's no guarantee with other investments like there is with paying off a mortgage. It all boils down to risk. Yes, you may come out ahead in some investments but they are not Guaranteed. If your money were in the stock market right now, paying off your mortgage would probably have given you a greater return than you are getting right now.

So what is the solution? Pay extra on your mortgage and get it paid off early! Even just one extra payment a year will remove about 8 years from a 30-year loan.

Do you have a plan to be debt free? No matter your income or expenses, it can be achievable for you. Find out where you are now, identify where you want to be in 5 years and make a plan to get there.

Start your debt-free plan today, include your mortgage and build YOUR future wealth, not someone else's.