Subprime Mortgage Qualifications
The tricky thing about subprime mortgage qualifications is that there is no standard practice, or even an across-the-board agreement among lenders, about what qualifies as subprime lending, much less what qualifications one must have to receive a subprime loan.
An Underwriter is a Person Too
That is to say, each underwriter evaluates loan applicants differently. And no two do it quite the same. For the most part, they all evaluate the credit risk based on:
- Borrower attributes
- Collateral attributes (ie. the home itself, in the case of a mortgage)
- Contract attributes -or the terms of the loan contract applied for
But they all evaluate those attributes differently.
Example: Credit Score vs. Downpayment
Many lenders define subprime loans as those made to borrowers with credit scores of 620 or below. Anyone with a credit score higher must qualify for a prime loan, harder to get but less expensive to the borrower overall.
Some lenders, however, consider subprime loans (meaning those costing more to the borrower) even those to applicants with credit scores over 660 if the downpayment made is less than 5% of the purchase price. Still others consider such loans neither subprime nor prime but Alt-A loans (a subject for another article).
This is just one example of the disparity with which different lenders view submprime lending.
Your Best Shot at Qualifying
Every situation is unique. The best way to be sure you qualify for the subprime loans for which you apply is to check with each individual lender personally, not just about their specific qualifications but about your unique situation. For even better results, select mortgage lenders recommended to you by friends, family, and colleagues whom you trust.
Before You Try to Qualify for a Subprime Mortgage
It is important to make sure that you require a subprime mortgage before starting to seek one out. If there is any chance that you just might qualify for a prime mortgage, it is to your every advantage to do so.
Even if you currently only qualify as a subprime borrower there are many ways to boost your credit score enough to advance you to the prime mortgage bracket. These methods include:
- Checking your credit reports for errors and fixing them
- Asking your credit card companies to increase your limit
- Paying down as much as you can on your current credit cards and other loans
Qualifying for a prime mortgage rather than a subprime mortgage may cost you a little time and effort in the short run, but it will cost you a lot less money in the long run.