Subprime Mortgages And Alternative Financing For Home Buyers

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Subprime Mortgages And Alternative Financing For Home Buyers

This BLOG On SubPrime Mortgages And Alternative Financing For Home Buyers Was UPDATED And PUBLISHED On November 6th, 2019

Subprime Mortgages
Gustan Cho Associates

Subprime mortgage loans are available to home buyers who do not qualify for government and conventional loans.

  • There can be many reasons why buyers do not qualify for traditional loans
  • It does not necessarily mean just due to bad credit
  • Some high end buyers may not qualify for traditional jumbo mortgages due the strict lending requirements of jumbo loans
  • Government and conventional loans have maximum loan limits
  • Subprime and non-qm loans do not have maximum loan limits
  • Jumbo lenders require 700 credit scores
  • Subprime and non-qm lenders only require a 620 credit score
  • Many self employed individuals cannot qualify due to the extensive write offs on their income tax returns
  • Subprime and non-qm lenders offer bank statement loans for self employed borrowers

In this article, we will cover using subprime mortgages such as bank statement loans and asset-depletion mortgages.

Using Subprime Mortgages To Take Advantage Of Rising Housing Market

How Using Subprime Mortgages To Take Advantage Of Rising Housing Market

Many borrowers cannot qualify for traditional loans due to their low credit ratings, histories of bankruptcies, and other factors but can qualify for subprime and non-qm loans.

  • Subprime Mortgages can be used as a bridge loan
  • Home prices are appreciating nationwide with no signs of a market correction

Many areas in the country, home prices are increasing double digits year after year.

Hot Housing Market Forces Federal Mortgage Agencies To Increase Loan Limits

Why Hot Housing Market Forces Federal Mortgage Agencies To Increase Loan Limits

Both HUD and FHFA have increased FHA and Conforming Loan Limits due to keeping up demand of home prices.

There is no maximum loan caps on non-QM Loans.

Subprime Loans For Borrowers With Little To No Credit

What are Subprime Loans For Borrowers With Little To No Credit

Sometimes lenders will make loans at subprime rates to borrowers who have very limited or no credit history:

  • Traditional loans are made to borrowers who have strong credit histories
  • Borrowers can demonstrate the capacity to repay their loans

Sub-prime loans are made to borrowers who have been identified as deficient in credit history, having the potential to not repay the loan, or both.

Interest Rates On Sub-Prime Mortgages

What does Interest Rates On Sub-Prime Mortgages mean?

The interest rates on subprime loans are higher than those on traditional and other nontraditional loans. This is because of the increased risk. Additional percentage points can easily add up to tens of thousands of dollars over the life of the loan. Subprime Mortgages came to an abrupt halt after the real estate market meltdown of 2008.

The Return Of Subprime And Alternative Financing Mortgages

Which means The Return Of Subprime And Alternative Financing Mortgages

The housing crisis led to the subprime mortgage crisis and countless of subprime lenders went out of business.

  • No doc loans and state income mortgages died and never resurrected
  • Gustan Cho Associates Mortgage Group are experts in subprime and non-qm loans
  • A substantial percentage of our business are non-qm loans and bank statement loans for self employed borrowers

Interest rates are higher and down payment requirements are 10% to 20%.

Down Payment Requirements

What are Down Payment Requirements

The higher the down payment, the lower the rates. Large down payments on home purchase is required for lower credit score borrowers.

  • Bank Statement Mortgages for self employed borrowers are becoming increasingly popular
  • No income tax returns is required with our bank statement mortgage loan programs for self employed borrowers

There are no maximum loan limits as well as no private mortgage insurance required.

Cases Where Subprime Mortgages Benefits Home Buyers

What are Cases Where Subprime Mortgages Benefits Home Buyers

Subprime mortgages makes financial sense for individuals who cannot qualify for traditional mortgage on a rising housing market.

  • Individuals who have had a history of compromised credit and cannot meet waiting periods after housing events and/or bankruptcy
  • These individuals can have the opportunity to waive the mandatory waiting period and take advantage of becoming a homeowner sooner than later

Non-QM and alternative financing allows this to happen.

Asset Depletion Mortgage Loans

What are Asset Depletion Mortgage Loans

Homebuyers who have no income but have substantial assets can now qualify for a mortgage with our Asset Depletion Mortgage Program offered at Gustan Cho Associates. Asset Depletion Mortgages offers retired individuals with substantial assets to meet the income requirements. Please read our blog on Asset Depletion Mortgage Loans.

Using Alternative Financing As A Bridge Loan

How Using Alternative Financing As A Bridge Loan

After they meet the mandatory waiting period they can refinance their subprime mortgages to a lower interest rate traditional loans. While they have their subprime mortgages they can rebuild credit. The most expedient way to rebuild credit is to make timely and full payments on a mortgage and by adding positive new credit tradelines. Often subprime mortgages are refinanced when borrowers’ credit histories have sufficiently improved for at least for 12 months. Some borrowers have no other choice but to accept subprime mortgages if they want to become homeowners.

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