Subprime Mortgage Loans – Why Choose These When You Do Not Have to

Subprime mortgage loans, which are high-risk mortgages with higher interest rates to compensate for poor credit records or late payments, often appear to be the only option for those who have low credit scores or want to get a mortgage solution. There are other options available to this borrower, however. Alt-A loans are a program that allows borrowers with poor credit scores to receive many of the same benefits as those who qualify for the “prime” loan.

What are subprime mortgage loans?

A borrower may initially find subprime mortgage loans appealing. It is possible that he was previously told he wasn’t eligible for a mortgage, which could have prevented him from achieving his goal of becoming a homeowner. He may turn to a subprime lender to help him achieve his goal. Subprime mortgage loans were designed to offer borrowers with high risk credit the chance to purchase a home. Many subprime lenders believe that “Do less, make more.” They simply want to sell their product and offer no other options for borrowers.

Subprime mortgage loans can be offered to borrowers with credit reports that may show red flags. However, there are many downsides. These high-risk mortgages have higher interest rates and closing costs to compensate for the lender’s perceived risk of taking on such a borrower. Many subprime mortgage borrowers will discover that when it comes time to pay their taxes and insurance, they don’t have an escrow account in which funds can be accumulated. It would be reasonable to expect that an escrow account would be required for a loan given to someone who has not been able to pay their bills on time or manage their finances well. In order to pay the taxes and insurance, borrowers might need to refinance their loan. Prepayment penalties are standard on high-risk mortgages. This can leave borrowers in worse debt than they were when they started.

Lenders offering high-risk mortgages are unlikely to agree to a fixed price until closing. The borrower may lose price protection and be forced to pay a higher interest rate for subprime mortgage loans.

Alt-A Loan Program: An Alternative to Subprime Mortgage Loans

Are there any other options available for borrowers with poor credit history than subprime mortgage loans. An Alt-A loan program is one option. Many lenders offer this alternative to high-risk mortgages and it can be a viable option for some borrowers when they are looking for mortgage solutions. This program is likely to be available to borrowers with credit scores between 600 and 660 who may have had a few late payments in their past, as well as borrowers who have a debt ratio around 50% (standard loans require 40%).

Alt-A loans are exempt from prepayment penalties, which is a major advantage over other high-risk mortgages. This allows for refinances that can be done later. Borrowers can get lower interest rates than the ones offered by subprime lenders. Closing costs are usually lower than subprime loans. Alt-A loans offer borrowers a greater range of payment streams, including interest-only loans and 40-year terms for buy downs. This can allow the borrower to purchase a larger house than he or her previously believed possible.

Alt-A loans are more flexible than traditional loan programs. They offer a longer guarantee lock period and can even write down the rate for a specific period of time. This allows borrowers the ability to understand exactly what they are agreeing to. This is a great way to make sure you are fully aware of your mortgage terms, especially if you need to refinance in the future.

How to choose a lender for Alt-A mortgages

A full-service lender should offer a variety of mortgage solutions. This includes Alt-A mortgages. By doing this, borrowers are able to be certain that the best program is offered to them, and not just the one that suits their lender’s needs. The borrower and mortgage broker must both be confident before they agree to work with any lender.

Borrowers should not be pressured to choose subprime mortgage loans based on their credit history. Instead, they should be informed about all available programs. Subprime mortgage loans might be the best option for home ownership for some borrowers, but they should still be able to make an informed decision after considering all options for high-risk mortgages. Borrowers may be able to get a mortgage with a lower interest rate and greater protections if they understand the benefits of an Alt A loan program.

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