Sub – Prime
By Sandy Flores
Real estate instructor at the College of Santa Ana
Many homeowners now have mortgage loans that could be considered subprime. Maybe you’ve heard of this type of mortgage or even have one of them, but you may be unfamiliar with its disadvantages.
A subprime mortgage is commonly known as a type of loan that does not meet the most basic features that require banks to grant a mortgage under normal conditions.
Who are the people who pattern for this type of subprime? Usually these mortgage banks categorized based on various factors such as for example credit. Credit is a factor that banks take into consideration.
If the credit rating of an applicant is below what is considered acceptable, or if the share of income of the applicant does not have a proper balance with the obligations of the borrower, it is likely that the chances of default are higher in the opinion of the bank.
Among other classifications of borrowers of subprime includes those people who stated their income but not documented.
They noted only in income needed to apply for a mortgage and qualify for the loan to be approved. Any of these conditions could determine its classification under a subprime mortgage.
Now, how it affects you come under this category of subprime mortgage?
These mortgages can affect it in different ways.
When a bank makes a mortgage of this type, the risk that the bank takes is more than could be granted to a person who has an acceptable credit score, and a balanced ratio between your income and obligations. One of the conditions offered by banks is the interest rate. The bank may assign a much higher interest rate compared to the interest rates offered in the market today. This will affect the short and long run since you would be paying a larger amount of money over the course of your loan. In most of these loans interest rates are adjustable, so you can more easily qualify. Note that the adjustable interest rates are constantly changing according to different rates used by banks to determine these changes. As the conditions are not always ideal, so too, the costs to acquire these high risk mortgages are higher.
However there are potential customers for this type of subprime mortgages for different reasons and circumstances are under this category.
In the market today, and with interest rates so low that occur, it is advisable to try to preserve your credit with an acceptable score. You are entitled to an annual report completely free credit, and so can monitor your credit personally. Check your credit history carefully, and if you have some negative reports, you can contact the credit card companies and can negotiate the debt on better terms and remove negative information on your credit. Confirm that your personal information is correct and that all accounts your credit report shows you belong. Dispute any credit or collection account that does not belong. Spend time working on your credit, it will benefit you in the short and long term.
Consider making a personal or family financial budget to help you identify your financial goals and achieve them more accurately. Consider setting up a small reserve fund for emergencies, unexpected expenses and savings. Do not expect much, it is important to analyze and understand the benefits of taking action and control of your finances.
As is always advisable to get professional advice and guidance if you want more, you can also visit the web address : www.federal reserve.gov / consumerinfo for more information on mortgages.