Subprime Mortgages : Whatever happened to them?
Oh the bittersweet memories of subprime mortgages. Remember the good ol’ days when you could get a million dollar home with no money down and no income verification? What about the enticing 1% ‘option arm’ loan program that so many people opted for back in the day? Who knew so many people would be tricked into loans with terms they didn’t or couldn’t comprehend. I’ll bet that even you, the reader, were duped at some point!
The banking industry finally got wise after everyone stopped making their payments and tightened up on some guidelines. The problem is that they are giving the impression that it’s impossible to qualify for a loan these days. So that leaves us with the question; whatever happened to subprime mortgages? They are still around! They’re simply disguised as traditional loan programs and require a little more homework on your end. For example, did you know?
- A USDA mortgage loan allows for borrowers to purchase a home with NO down payment (that’s not a misprint, 0% down). So will a VA loan for veterans!
- An FHA mortgage still requires a 3.5% down payment, but you can use a gift from a family member for the funds. In addition, some banks will go as low as a 580 credit score.
- Conventional loan programs can require as little as 3% down and have much lower mortgage insurance than FHA mortgages.
Being a mortgage broker when I was younger, I can still vividly remember receiving the ‘rate sheets’ each morning via fax and seeing the different loan-to-value ratios and credit score requirements of each subprime mortgage lender. It was a glorified spreadsheet, basically. Back then, you could typically lend someone with a 500 credit score about 75% of the value of a home at about a 7 or 8% rate (not an actual rate quote, just an example). Someone with a 600 credit score could even qualify for 100% financing at some lenient backs at a rate of maybe, say 6.5-7%. How does that compare to now? Well, now you can get about 65% of the value of a home with a 500 score at about 8 or 9% interest (not an actual rate quote, just an example) with some private hard money lenders out there. In addition, you can still get 100% financing with a 600-640 credit score on a VA or USDA loan at an interest rate starting with a 3! (not an actual rate quote, just an example).
The bottom line is that if you want a home bad enough and you’re willing to work for it, there may be a loan program in place for you. Money talks when it comes to getting financed, so the more you have to put down, the better your chances of approval. But, if you have been making your payments on time, qualifying for a no money down home loan could be way easier than you think.
Subprime mortgages may be the dinosaurs of the lending world, but their spirits will live on forever as long as the US government still plays an active role in the mortgage markets. The United States is founded upon principles such as the dream of homeownership, and the government seems intent on making that dream possible for as many people as possible, as long as its economically feasible to do…