This Article Is About SubPrime Mortgages And Alternative Financing For Home Buyers
Subprime mortgage loans are available to homebuyers 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 to 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
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 loans. Home prices are appreciating nationwide with no signs of a market correction. In 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
Both HUD and FHFA have increased FHA and Conforming Loan Limits due to keeping up demand of home prices. The Federal Housing Finance Agency, who is the regulatory agency for conventional loans has increased conforming loan limits three years in a row due to rising home prices nationally. HUD also increased FHA Loan Limits for the past three years. President Trump has signed into law a bill that exempt maximum VA Loan Limits. The VA no longer has a maximum loan limit on VA Loans. There are no maximum loan caps on non-QM Loans.
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, have the potential to not repay the loan or both.
Interest Rates On Sub-Prime Mortgages
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
The housing crisis led to the subprime mortgage crisis and countless subprime lenders went out of business. No doc loans and state income mortgages died and were never resurrected. Gustan Cho Associates Mortgage Group is an expert 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
The higher the down payment, the lower the rates. Large down payments on a home purchase are required for lower credit score borrowers. Bank Statement Mortgages for self-employed borrowers are becoming increasingly popular. No income tax returns are 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
Subprime mortgages make financial sense for individuals who cannot qualify for a 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 allow this to happen.
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
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.
February 11, 2021 - 4 min read