Can you still get a sub prime mortgage?

Sub prime mortgages allow people who might otherwise have trouble with approval the ability to buy right away.

This page:

  • Describes who needs a sub prime mortgage

  • Explains how sub prime mortgages differ from standard loans

  • Lists what to look for in a sub prime mortgage lender

The second part of this Mortgage Basics Guide describes what goes into your mortgage package such as points, insurance, etc.

Is a sub prime mortgage right for you?

Borrowers with a flawed credit history, a small down payment, or the inability to document income will usually need to get a sub prime mortgage.

As the name implies, sub prime mortgages aren't the best deals out there. But that doesn't mean that you can't make the best of one.

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We urge you try our top-rated prime lender, Eloan first, to see if you qualify for a regular mortgage. It won't hurt you to try, and if you do not qualify, FullSpectrum Lending guarantees the lowest sub prime rates in the country, so you'll still have an opportunity to save.

What a sub prime mortgage really means

Sub prime mortgages have higher interest rates than prime mortgages and carry additional loan origination fees. Lenders use the higher rates and fees to offset the risk of investing in a home buyer with damaged credit or little money down.

Sub prime mortgages, though always more expensive, can still be a pretty good buy under the right circumstances. If the housing market is cheap, or rates are very low, or you've found your dream home, or you're just tired of renting, accepting the extra cost in order to buy right away will be worth it.

And remember that a mortgage paid responsibly will always improve your credit profile, and there are even special sub prime mortgages designed specifically to repair a poor credit history.

While most sub prime mortgages carry prepayment penalties and private mortgage insurance (PMI), we recommend opting for lenders who will minimize these costs. And that is why, for a sub prime mortgage, where you look for the loan can be as important as the loan itself.

Sub prime mortgage lenders

Good sub prime mortgage lenders offer mortgage products that allow poor credit borrowers a chance to build equity and a stronger credit profile without financially overextending themselves.

How do you tell if a lender is reputable, especially in the current economy? One good way to secure a legitimate sub prime loan is to, instead, request a prime lender's flexible mortgage products. The rates on these loans are not as low as those in the full-on sub prime market, but they come with less risk.

Sub prime mortgages may require you to pay extra private mortgage insurance, or PMI. PMI is a policy the lender takes out on you, the borrower, to protect them from losing out on their investment if you default on the loan. It doesn't protect you at all, but you have to pay for it, which is why it is nice to avoid.

The sub prime lender we recommend, FullSpectrum, does not charge for PMI separately. Instead the cost is included in the interest rate charged.

While this will make your total interest bill higher, by up to ¾ to 1 percentage points (.75%-1%), interest is tax deductible and PMI is not, so you'll save that money on deductions.

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