How to Acquire a Subprime Mortgage Loan

Subprime lending is designed to help individuals who have less than ideal credit situations or histories, or who have outright bad credit, by extending these individuals mortgage loans to become homeowners despite their negative credit score. A subprime mortgage loan can be extended to individuals who haven't got the means to save up enough money to create a substantial down payment, but this factor alone shouldn't provoke those individuals into believing that the only option for them is a subprime mortgage. If you are considering contacting a subprime lender in order to become a homeowner, you should do your research and be aware of a few different tactics that some subprime lending firms use in order to turn profits on high-risk loans.

Getting a Subprime Loan

If you want a subprime loan, you can usually get one- there are plenty of 'bad credit' or subprime lenders available with a simple search online. However, you need to understand what you are getting into:

• Interest - This is perhaps the biggest issue when considering a subprime mortgage. There are subprime lending firms out there that will charge an unfair amount of interest on any subprime mortgage they decide to contract. Granted, your interest rate is going to be higher than that of a borrower with outstanding credit and a 20% down payment, but the rate of interest applied to the loan shouldn't be an unfair one. An interest rate of 12%, for instance, should be enough cause for you to either attempt to negotiate the terms of your prospective mortgage, or find another subprime lender altogether.

• Penalties - Subprime mortgage lenders may also decide that it's appropriate to apply a prepayment penalty to the term of the mortgage, meaning that if you pay ahead enough that the loan has been satisfied before the last scheduled payment, the lender may penalize you for not allowing the loan to run the full course of the contracted term. While this is a common practice among lenders, most consider 5 years to be worthy of applying a prepayment penalty. If your lender suggests anything under 2 to 3 years as being worthy of applying a prepayment penalty, this should tip you off to the fact that the lender is only trying to make every cent possible off of your interest, and convince you to look elsewhere for a subprime mortgage.

Getting Help

If you are considering a subprime mortgage, make sure you have a real estate lawyer look over the documents and papers. You don't want to agree to a mortgage that is predatory or that you won't be able to handle, and a lawyer can help you make sure you are treated fairly by the lender involved.