How to Find Top Subprime Mortgage Lenders for Bad Credit Borrowers

Intro: How to Find Top Subprime Mortgage Lenders for Bad Credit Borrowers

It’s natural to wince a bit upon realizing that subprime mortgage lenders for bad credit may be your only option for getting a mortgage to buy a home, getting a second mortgage on a home you already own, or refinancing a current mortgage.

After all, the 2008 recession is still fresh on American minds. If you have any idea what happened in the banking industry during that particular crisis, you may be (rightly) wondering if subprime mortgage lenders even exist in its wake.

If subprime mortgage lenders do exist, it’s natural to be curious about how reputable they are, what kind of track record they have for service, and how high their rates and fees are right now.

To get an overview of the industry and find out how to locate and approach a subprime mortgage lender that can help you get the loan you need, read on.

Understanding the Current Subprime Home Lender Industry

While fewer U.S.-based consumers have a FICO score below 550 than they did just a few years ago, there are still a large number of people who require the services of a subprime home lender to get a mortgage, second mortgage, or refinance their home loan.

The average U.S. FICO score is actually at an all-time high of 695 since 2005, which is encouraging in general.

There has also been a decrease in delinquencies reported more than 90 days past due across all credit products. In fact, only 5.1% of all home loans reported a 90 plus–day delinquency as of April 2015. This suggests that the worst of the housing crisis of 2008 is well behind us.

Even with all of this great news about American credit scores, access to subprime mortgage lenders for bad credit remains in high demand. The industry is trying to bring new borrowers to the table, expanding homeownership opportunities for people who previously couldn’t get a mortgage.

A subprime lenders’ mortgage could very well be the answer to the demand for loans for people with bad credit.

According to a recent Equifax report, 5% of all mortgages originated in 2015 were classified as subprime. This type of loan is increasing at the same rate as traditional mortgages, which make up 95% of all mortgage loans.

Subprime mortgage lenders have 5% of the mortgage industry, remaining consistent for three years in a row. Looking forward, new scoring models created with the intent of adding trended credit data to underwriting for mortgages will help make the line between high-risk and low-risk borrowers clearer in the near future.

FHA Loans – Great Options When Working with Subprime Mortgage Lenders

FHA loans are a great place to start when researching which top subprime mortgage lenders for bad credit might best meet your needs.

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FHA loans have been around since the 1930s. They are insured through the Federal Housing Administration, which protects the lender in case the borrower defaults on the loan.

As a further layer of protection, the borrower must pay mortgage insurance on the loan to cover the difference between what the house is worth and the amount of the mortgage in the event of default.

Many of the best subprime lenders offer FHA loans. It’s usually best to do a local search for these firms to get the best possible customer service.

Whether you are considering an FHA mortgage or a more traditional subprime mortgage lender, it’s a good idea to start close to home. If there are any local programs for credit-challenged applicants, companies based out of your home area will know best how to pursue those options.

Borrowers with credit scores as low as 500 to 579 have a good shot at getting an FHA loan. This type of subprime lenders mortgage requires a down payment of between 3.5% and 10%, depending on the applicant’s credit score.

Borrowers who have a bankruptcy in their credit file that is at least two years old can usually get this kind of mortgage from subprime home lenders in spite of that black mark.

When applying for an FHA loan through subprime mortgage lenders, it’s important to understand that attending the FHA Consumer Credit Counseling Program increases the chances of approval.

With certain lenders, it could also lower the interest rate on the loan. Be sure to ask potential subprime home lenders if they offer a discount on interest rates and/or fees if you attend this program.

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Who Are the Top Subprime Mortgage Lenders?

One of the best online tools for locating subprime mortgage lenders for bad credit is LendingTree. If your local search didn’t turn up the desired results, or if you live in a rural location with few options for subprime home lenders, LendingTree is a great place to start an online search.

Creating a LendingTree account is easy and should take no more than five minutes. This online marketplace offers a succinct and up-to-date subprime mortgage lenders list that helps borrowers quickly compare services.

After entering personal information on LendingTree’s website, subprime mortgage lenders for bad credit will make loan offers. So instead of making several individual applications, which could be quite time consuming, you can apply just once and then choose from several offers from top subprime mortgage lenders.

All offers are subject to final approval, but going through this step offers a close-up view of potential mortgage options tailored to your individual situation.

Using LendingTree’s website is free, but application and processing fees imposed by subprime mortgage lenders apply to the accepted loan. These fees vary widely, so it’s important to pay attention to the terms and read the fine print carefully before agreeing to any type of loan.

Since this company works with many of the best subprime lenders, using LendingTree’s website allows borrowers to choose from different types of mortgages including subprime mortgage lenders for bad credit, VA loans, FHA loans, adjustable-rate, fixed-rate, or traditional loans.

Some of the biggest subprime home lenders include Wells Fargo, Capital One, JPMorgan Chase, and Bank of America. Citadel Servicing has a reputation for making impossible loans happen for customers with credit scores as low as 490.

They make their profit by bundling and selling a group of subprime lenders mortgages to investors willing to take on the risks and rewards of this type of loan.

Springleaf is a company that’s fairly new to the subprime lending scene, but it’s value has exploded to $3.5 billion. For some lenders, this company is a valuable resource for subprime loans to help clean up their credit report in preparation for getting a mortgage.

Even at a high interest rate of up to 26%, it can be advantageous to consolidate credit card debt that has the same or higher rates while fixing an unhealthy debt-to-credit ratio on a credit report.

For many people, having a subprime personal loan goes hand-in-hand with their subprime mortgage loan. In many cases, one makes the other possible.

Who Are the Top Subprime Home Equity Lenders?

Subprime home equity lenders are in high demand. Subprime home equity loans rose 29.5% between 2014 and 2015. Although they make up only 4.6% of the total volume of all mortgage loans, a larger demand for this type of loan means subprime home lenders are offering more choices to consumers with less-than-perfect credit scores.

When shopping for a subprime mortgage lender that offers home equity loans, LendingTree may be a good choice for you. You’ll be able to see all of your options, and like people using their site to find the top subprime mortgage lenders, you’ll have access to the best subprime home equity lenders.

What to Look for When Searching for Subprime Mortgage Lenders

Shopping around for the best rates and terms is a smart money move, so don’t be shy about letting potential lenders know your intentions. Don’t be embarrassed by your need for a subprime lenders mortgage. Know that the best subprime lenders are ready and willing to help.

Many consumers have question marks surrounding their financial lives. Some are entrepreneurs who built their business on a cash basis and proving income is complicated. Others may be paying off a mountain of medical bills or dealing with a large amount of student loans early in their career.

Look through a subprime mortgage lenders list with the intent of finding a lender that has completely transparent terms. Red flags include high fees that are due up front. Application fees and variable rates deserve extra attention, as well.

Settle in with the fine print and plan to go through it line by line. Let the lender know you’ll be returning to the conversation with a list of questions. Reputable subprime mortgage lenders for bad credit welcome inquiries and are happy to explain the terms of their available financial products in plain language.

Subprime Mortgage Lenders- Finding the Best Rates and Term

While it’s true that people who have limited choices tend to agree to terms that aren’t necessarily in their favor, it is possible to evaluate a subprime mortgage lenders list to find a reputable lender that you can trust with your mortgage and your money.

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Everyone’s financial situation is different, of course. It’s impossible to give a blanket set of tips or advice that will apply to the general public. But there are still a few things that are worth considering when looking for the best subprime lenders.

In life and money; trust your gut. Since individual financial situations vary so widely from person to person, it’s important to have a certain unflappable amount of confidence in your knowledge of your situation. Dealing with even the best subprime lenders requires organization, determination, and focus.

If the terms don’t seem favorable, or if you feel pressured into a mortgage, take some time to dig deeper. Always check out subprime home lenders and make sure they don’t have complaints on their record with the Better Business Bureau. Read reviews online from current and former customers who used the subprime mortgage lender’s services. One negative review usually isn’t a big deal, but be on the lookout for trends and common complaints.

Evaluate Subprime Mortgage Lenders List for Bad Credit

There are many subprime mortgage lenders and subprime home equity lenders that are building their business by offering fair terms and fees along with great customer service.

Be particularly aware of any prepayment penalties that lock you into the loan until it is completely paid off, balloon maturities that require a big final payment, or artificially low introductory rates that increase sharply down the road.

Current Rates and Fees Charged By a Typical Subprime Mortgage Lender

Wells Fargo offers a new loan program that lets borrowers get a mortgage with just 3% down, even with a less-than-ideal credit history, low FICO score, and/or hard-to-verify income. It’s just one of the many big-name banks that are willing to act as subprime mortgage lenders for bad credit.

Among these lenders, a rate of 3.75% on a 30-year fixed mortgage isn’t unusual. Of course, much depends on the property value, down payment amount, and the borrower’s individual financial situation. Taking a government-sponsored personal finance class may even reduce the interest rate with some subprime home lenders.

Bank of America has a program that requires applicants to verify their lower-than-average income, which is great news for people searching the subprime mortgage lenders list for a bank with a long history.

Rates and fees vary widely from person to person. Banks may have different policies in place, but for the most part, they keep their subprime mortgage rates under tight wraps.

There are pre-qualification questions that must be answered before you can receive definitive answers to your questions about the various rates and fees involved in obtaining a subprime mortgage. Understanding this will help you remain patient through the process of finding out what rates and fees the banks on the subprime mortgage lenders list will offer.

What Information Will Subprime Mortgage Lenders Ask For?

Subprime mortgage lenders ask for exactly the same information that traditional mortgage lenders require. You’ll need to present W-2 forms for the past two years if you are an employee of a company.

If you own a business, you’ll need 1099 forms or profit and loss statements. It’s also a good idea to have your most recent federal tax return and the two prior tax returns handy.

Depending on the lender, you may need to present canceled checks or proof of payment from your recent rent or mortgage payments. You’ll also be asked for information about your current debts including student loans, car loans, child support payments, and credit cards.

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How to Know if You’ll Be Approved By a Subprime Home Lender

Your FICO credit scores are the most important factor that determines whether or not you will be approved for a mortgage. There are actually three companies that offer information about creditworthiness. The three main credit bureaus are Experian, TransUnion, and Equifax.

Before you apply for any type of mortgage, find out what your credit scores are. In fact, it’s a good idea to check your credit reports thoroughly for mistakes at least six months before you need to get a mortgage. It is possible to correct inaccuracies on a credit report, but it takes time.

A credit score below 620 is subprime. If you rank higher, you are eligible for lower interest rates, smaller fees, and maybe even a faster approval. A score of 760 earns the best interest rates and terms.

If you are applying for an FHA loan, you’ll need a proven source of income and a credit score higher than 500. If you want to qualify for the FHA loan that requires less than 10% down, you’ll need a credit score higher than 580.

Getting approved for a subprime mortgage isn’t nearly as difficult now as it was just a few years ago. If a conventional mortgage isn’t in your future, there are many types of subprime loans worth pursuing.

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