Are You A Subprime or Conventional Loan Borrower
Everyone wants the best interest rate available when getting a mortgage. Some people think that low interest rate they see advertised on tv or the radio is available for everyone. This simply
isn't the case. Before applying for a mortgage you should evaluate your current credit and financial situation so there are no
surprises when you apply.
A loan approval is based on several factors such as your credit, assets, equity, income to debt ratio, and the type of property. If you change anyone of these factors your approved rate could change (go up or down). Proper planning with your mortgage advisor will go a long way to accomplish your goals of getting the best possible rate.
Normally, the difference between subprime borrowers and conforming borrowers is their credit score. Lower credit scores (under 600, generally) means the borrower is subprime. Subprime mortgages have higher interest rates.
How easily can you document and prove your income? Many conforming borrowers can prove their income with their tax returns and W2s. Other borrowers have complicated pay structures, are self employed, are paid on commission, or do not pay taxes on their income. If this is the case then a subprime loan with relaxed income documentation may be best. There are even some loans that require no income documentation and no job history to qualify granted you have a strong credit profile and good credit scores.
Even if it is determined that you are a sub-prime borrower due to a variety of factors, you may still qualify for a great rate. There are many banks who are very aggressive in this marketplace who want this business. The best approach is to contact a mortgage broker, who has access to numerous programs through many different banks, to find out the absolute best program you can qualify for.
Another issue that lenders look at is your tradlines and thier history. It is possible to have a very good score with no accounts showing up on your credit report. If that's the case you may have to get a subprime loan.
Even if you have prefect credit and an 800 credit score this may not guarantee you the absolute best rate out there. Consider the type of financing you are looking for. If you are looking to buy a home but you have no money for a down payment or closing costs and you can not show adequate income documentation to qualify you, then you may need to use more of a "creative financing" type loan. You may need to go with a stated, no documentation, or no ratio type loan. Match that with the fact that you also have to go with 100 percent financing and you could be looking at a rate that is 1-3 percent higher, if not more, than the best rates out there. Therefore, even though you have excellent credit and a great credit score you could still need to obtain a subprime loan because loan approval is not based on just credit and credit scores alone. There are many other factors that effect what type of loan you will qualify for. Therefore, consult a mortgage professional early on when looking to buy a home to find out what kind of borrower, subprime or conventional, and loan will be best for you so that you can look for homes that will fit within your budget for the mortgage that you will qualify for.
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Information listed above is to be used for educational purposes only and is not guaranteed