People who are currently facing bad credit score or bad credit history need to understand the basics of sub prime mortgage loans. If you plan to apply for this loan, it is necessary you understand its implications and get legal counseling before setting your mind on it.
Question # 1: What are Sub Prime mortgages?
Those borrowers who have bad credit score or poor credit history apply for Sub Prime mortgages loan. We are talking about those borrowers who have applied qualify for mainstream financing but couldn’t qualify so that is why they applied for sub prime mortgage loan.
Those borrowers who have poor credit scoring signifies that they have low credit scoring or middle level scoring then lenders have the right to refuse the application of mortgage loan from these borrowers.
Sub Prime mortgages entertain all these rejected applications for mortgage. Due to the fact that Sub Prime mortgages loan focus on poor credit market so they were to come with higher mark up rate. What they do is that initially they give a time frame to the borrowers where they can adjust themselves then after that they will charge higher rate to earn.
Question # 2: Who are Sub Prime Mortgage Lenders?
Those lenders who are giving credit to those borrowers who couldn’t qualify for prime financing are referred to as Sub Prime mortgage lenders.
Most often Sub Prime mortgage lenders are affiliated with prime mortgage lenders but at present after the crisis, almost all Sub Prime mortgage lenders have left the market.
Question # 3: What are the prime reasons of high demand for Sub Prime mortgages?
There are several reasons due to which there has been a high demand for sub prime mortgages. I have mentioned few of them below:
Sub Prime mortgage focus those passing through financial crisis
Until the end of Year 2006, owing to the reason that Sub Prime mortgage focus that market which was about to shut down and rejected by prime lenders, it was the popular mortgage mood. Sub Prime Mortgage lenders helped the borrowers who were facing financial crisis and were unable to go for refinance with prime lenders.
It was the the main reason due to which Sub Prime Mortgage gets maximum popularity. Real estate market has witnessed many examples of Sub Prime borrowers who were able to avail prime mortgage but in order to save time or avoid complications they choose sub prime.
Marketing efforts of Sub Prime Mortgage lenders
The marketing efforts made by the Sub Prime Mortgage lenders is another prime reason due to which Sub Prime Mortgage gets maximum popularity. There were many Sub Prime Mortgage borrowers who didn’t even contact the mainstream lenders. It can be rightly said about the Sub Prime Mortgage mortgage brokers and agents that they were very active in promoting their business.
They targeted middle class population
Sub Prime mortgage brokers and agents targeted middle class population. This was the class where people were unable to maintain their credit scoring at good level due to their small earning portion and due to the higher properties prices it becomes almost impossible for this middle class citizen to buy their own houses. So the Keen Sub Prime Mortgage brokers and agents took full advantage of this opportunity.
Cash Equity Requirements
Another reason of higher demand of Sub Prime loans was the requirement of cash equity. In order to mitigate the risk of default, primary lenders required more and more equity. Whereas, there are several borrowers who want to become owner but they don’t have huge cash amount to put for the equity. Thus, owing to this fact they were compelled to choose sub prime model of financing as compared to the mainstream lending source.
Only Sub prime mortgage Lend to those who had foreclosures
Sub prime mortgage lenders were the last hope for those borrowers who had foreclosure in their record file. Due to this very important aspect of Sub prime mortgage lending default borrowers were attracted towards this type of mortgage loan. Though it seems to be a good thing that lenders are lending to default borrowers also but due to this lender’s investment proves to be junky investment.
