Sub-Prime Mortgage Loan - How Sub-Prime Loans Differ From
Conventional Loans
Sub-prime mortgage loans offer more flexibility than their
conventional mortgage loan cousins. With terms determined by
Freddie Mac and Fannie Mae, conventional loans have strict
guidelines on loan amounts, terms, and PMI requirements. With
sub-prime mortgages, lenders can provide more choices with an
increase in rates.
The Limits Of A Conventional Loan
Conventional loans are often sought for their low rates. But
those low rates come with limitations. Freddie Mac and Fannie
Mae buy mortgages after they have been processed by a financial
company. This frees up money for the lender to make more loans.
However, Freddie Mac and Fannie Mae have tight guidelines on
what types of loans they will purchase.
Among these limitations are caps on loan amounts. In 2006 the
limits were set at $417,000 for a single family house. Every
year these caps are reevaluated. Conventional home loans also
require you to carry private mortgage insurance if you borrow
more than 80% of the home's value.
To qualify for a conventional mortgage, you must have good
credit, cash assets, and steady employment history.
The Options Of A Sub-Prime Loan
Sub-prime home loans provides financing for those with poor
credit or unusual application terms. This can include jumbo
loans, exceeding the limits of a conventional loan. People with
unusual or unpredictable jobs may also find an easier time
getting financing with a sub-prime lender.
Sub-prime mortgage terms are determined by the individual
lender. So you can get a zero down loan with a poor credit
score. You can also find near market rates by placing a large
down payment at closing. Private mortgage insurance is not
required with a sub-prime mortgage, potentially saving you
hundreds a year in premium costs.
Getting The Right Mortgage For You
Most financing companies handle both types of loans, so you can
easily get quotes for both types. To find the right mortgage,
you have to take the time to crutch the numbers.
Look at the APR to determine the total cost of the loan. But
also factor in any plans to move or refinance in the future. By
turning over your home loan in a few years, you don't want to
pay out large application fees for low rates that don't have
time to save you money