Subprime loans also known as non-conforming loans to buy your dream home

Subprime Loans

A subprime loan is offered by specialized mortgage lenders to buyers who do not fall within the ambit of traditional mortgages. A subprime loan can be offered to people who do not have a very good credit history, self-employed people who do not have tax returns or do not have a good financial history. A subprime loan can also be extended to individuals who have spent less than 6 months in their existing jobs or to new businesses. There is lot of ambiguity on the qualification factor for subprime loans. Banks are not ready to offer subprime loans because of the poor financial health of the applicants. However, private lenders offer loans to these borrowers when they have cash or equity to reduce the loan to value ratio.

There can be several reasons for a subprime loan applicant’s bad credit history. It can either be because of job loss, failure to maintain and file their financial statements in time or they simply do not fit the big 4 box. Irrespective of the cause, it is well known that subprime loan is a customized product offered by specialized lenders. The lenders check on the capability of the applicant to pay back the loan and the real estate security rather than their credit history. A subprime loan comes with a higher interest rate due to the customized and specialized nature of the loan. A borrower interested in a subprime loan can take the help of a mortgage broker to apply for the loan or call these private specialized lenders directly. It is also usually advisable to deal with a credible lender which has been in the business for a long time. They have well defined processes for lending and recovery.

 

A subprime loan like an ordinary mortgage can be taken for a period of 1-12 months depending on the repayment capability of the borrower. There are prepayment terms and conditions and if the borrower wishes, the loan can sometimes be repaid during the lifecycle.

 

An individual who does not have a very good credit history will have a better chance in buying a home in Australia. Due to private lenders, many genuine borrowers who may have faced financial difficulty during some point can avail the opportunity of buying their dream home. There are several benefits in opting for a subprime mortgage.

 

  1. Buying a home will stop monthly rent which gives no return and is a burden on the home budget.

 

  1. Second, the value of the property will appreciate and the owner can make a healthy profit by selling the property and repaying the mortgage.

 

Once the mortgage is paid off, the property can be used as collateral for another mortgage or any other loan. Even with negative credit record, subprime loans offer a great opportunity to own a property.