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| Subprime Mortgage |
Subprime mortgage loans were granted to people with poor credit histories, who would not have been able to qualify for normal mortgages. Subprime loans were liberally given by lenders from 2004 to 2006. The huge increase in foreclosures in 2006 led to the subprime mortgage crisis.
As the number of foreclosures shot up, real estate prices fell sharply, making the problem even worse. Lending institutions ran into serious financial problems, and many of them went bankrupt.
The wave of foreclosures is now affecting prime borrowers with fixed-rate mortgages. States with the highest unemployment rates, which had the biggest increases in property prices, are experiencing the biggest increases in defaults on prime, fixed-rate mortgages.
As a result of the subprime crisis, lending norms have become very strict and it is no longer possible for someone with a bad credit history to get a mortgage loan.
Due to the higher level of risk involved in providing mortgage loans to people with bad credit, subprime mortgages came with higher interest rates.
Though there are different types of subprime
mortgage loans, the most common is the ARM (Adjustable Rate Mortgage). An ARM initially has a fixed interest rate, which resets to a higher variable interest rate after a certain period.
When an ARM resets to a higher variable interest rate, the monthly payment can become unaffordable for a borrower with a poor credit history, increasing the chances of foreclosure.
Now, mortgage loans are only provided to applicants with excellent credit, who can provide documents proving their income and employment history. Mortgage loan applications are checked very carefully by lenders.
If you have a poor credit history, it may be best to try to improve your credit score before you apply for a mortgage loan.
This is a good time to invest in real estate, because property prices are very attractive and mortgage rates are affordable. You can get a great deal if you have a high credit score.
Use an
online mortgage calculator to find out how much you can afford to borrow. Shop around, compare offers from different mortgage lenders, and negotiate for better terms.
Obtain quotes in writing from a few reputable mortgage brokers and lenders. You can get a much better deal if you can get lenders to compete for your business. Check the credentials and reputation of the lenders and read the fine print before you sign up.
We can help you to get free, no-obligations mortgage quotes from pre-screened mortgage companies, quickly and easily. There are no costs or commitments involved at all and we will not disclose your contact information to anyone without your permission.
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