What Are Subprime Loans?

There are many different loans and mortgage products that were made popular in the early 2000’s. In fact, it can almost feel like you didn’t know where to begin! One type of home loan that received a lot of media attention is the subprime mortgage. But what are subprime loans? Have you seen The Big Short? Do you know who Elizabeth Warren is? Read on to discover what used to be the subprime mortgage loan.


What are subprime loans?

A subprime mortgage is one that is typically issued to a borrower who has a poor credit rating. Conventional prime mortgages are not generally offered to borrowers that have low credit ratings because the lending company considers the borrower as being at too great of a risk in terms of defaulting on the mortgage payments.

Lending companies will tend to charge interest on subprime mortgages at a considerably higher rate when compared with traditional prime mortgages. They do this to compensate for the greater risk. These mortgages tend to be adjustable-rate loans as well (2/1 arm), which means that the interest rate could possibly increase at specific points in time.

Characteristics of subprime loan borrowers

Some of the most common characteristics of subprime loan borrowers are as follows:

What Are Subprime Loans?

What are the different types of subprime home loans?

There are a number of different types of subprime loans, so let’s take a look at some of the most common below:

Getting a subprime loan - * Not Available *

In most cases, a FICO score range of between 500 and 660 was considered applicable to subprime borrowers. However, it is important to note that this is not always the case. It does differ from lender to lender, as all mortgage providers have their own requirements. Please also note that just because you may have a credit score between 500 - 660, you may qualify for superior mortgage programs as subprime loans are no longer offered and are outdated. Subprime loans also were labeled as a big piece of the financial crisis of 2008.

By using a credit score, applicants can be segmented into different categories. Nevertheless, it is up to the lender to determine whether or not an applicant is a good fit, just as they would with a conventional mortgage. Checking your credit score is a good place to start, though, when determining whether or not this is the right solution for you.

Final words on what are subprime loans?

We hope that this has helped you to get a better understanding of what subprime mortgages are and how they work. Whether or not a subprime loan is right for you depends on your individual circumstances. It may make more sense to try and build your credit rating and apply for a mortgage once improved. This is something an experienced mortgage broker may be able to help you with or provide proper guidance. We do not offer subprime mortgages are not offered,


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