Benefits of Subprime Lending

Everyone has heard about all of the problems with subprime lending. In reality it is not all bad. There are some benefits to subprime lending which we will discuss in this article.

Are there any benefits of subprime lending? If you read or listen to the media lately you are led to believe that subprime lending is the root of all evil. This is not the case however. There are benefits of subprime lending. Lets take a look at an often overlooked side of this situation.

If you have a low FICO (or credit) score, and this is due to a situation in the past you are still considered a subprime borrower. This means that you pay a higher interest rate than those with better credit. It also means that credit is harder to get. However, what if the reason for your troubles was due to circumstances that no longer exist such as a family illness, unemployment, divorce or other tragedy? You are still in the subprime category however, if you play your cards right you can end up ahead of the game. Here is the brighter side of the subprime lending market.

You can benefit from subprime lending if your credit problems are in the past but that past still haunts you. Although you will pay a higher rate, you can still get a mortgage. This means that home ownership is possible for you. Not every subprime borrower is in trouble. The subprime market gives responsible people who have had credit problems in the past a second chance.

It allows them to rebuild their credit by loaning them money for cars and homes. If a buyer uses this second chance wisely, they will not only own their home but they will reestablish good credit. The trick is to only buy what you can afford. The reason so many people are in trouble is a multi-faceted problem. However, if you only buy the house you know you can afford and not what you qualify for, you will not run into problems.

Take this scenario; you are renting a house for $1,000.00 per month. You can comfortably afford this amount for housing and have enough money put away for a small down payment on a home. Your credit is not horrible, however it is not great either and you are a subprime borrower. A consultation with a lender is set up and they tell you they will prequalify you for a $300,000.00 mortgage.

Before you start looking for a home in the $300,000.00 range, you had better look at taxes and insurance on the property in addition to the mortgage. A subprime rate for a 30 year fixed rate loan will be significantly more than the $1,000.00 a month that you feel you can afford. Look for a home that is affordable to you, not at the maximum you qualify for. In this real estate market, there are a lot of bargains to be had. Stick to what you know you can afford monthly and do not let a mortgage broker talk you into buying more house than you can afford. All that accomplishes is putting money in the brokers pocket and takes the money out of your pocket. If you stick to your budget, you will never get into trouble.

The benefits of subprime lending have been greatly overshadowed lately by all of the negative press. Subprime mortgages and other lending gives people who have had credit problems in the past a second chance. When used in this manner, there are many benefits of subprime lending.