It is a common misconception that the term subprime refers to the interest rate of a mortgage when in fact subprime actually refers to the credit history and score of the borrower taking out a mortgage. The two often go hand in hand as borrowers with lower credit scores will end up with higher interest rates in many cases. Interest rates can vary greatly however as they are based on more than just credit score. Down payment amounts and the number and type of late payments the borrower has will impact interest rates as well.
In 2008, the housing market crashed as a result of many borrowers defaulting on subprime mortgages. Mortgages were offered with little or no down payment to borrowers without jobs and without steady income. Many of these loans were adjustable-rate mortgages that started with low rates that increased significantly over time. As home values decreased and these interest rates rose, these borrowers were essentially stuck with mortgages that were impossible for them to pay back and therefore they defaulted on these loans.
As the marketing is recovering from this difficult time, subprime mortgages are once again being offered with caution. At Associates Home Loan of Florida, Inc., we work closely with subprime borrowers throughout Tampa to help make their dreams of homeownership come true.
Credit score is a common factor when determining if a borrow is considered subprime, but there are other factors that can cause someone to be categorized as subprime as well.
Subprime borrowers may have
- Low credit scores below 650 (this may vary from lender to lender)
- Recent bankruptcies
- A history of delinquent/late payments
- High debt-to-income ratios (often greater than 50%)
- High income to expense ratios.
Subprime borrowers can once again get mortgages, but lenders are not just handing out loans as they did in the early 2000s. Some lenders can charge interest rates upwards of 10% and require down payments as high as 25-35% for subprime loans.
The FHA is one of the government-backed programs that still offers a low down payment option of only 3.5% with credit scores below 650. Borrowers can qualify with scores even as low as 580 but higher down payments or interest rates may be required. USDA and VA loans are also available to specific borrowers with less than ideal credit. Associates Home Loan of Florida, Inc. offers the best rates in Tampa on FHA, VA, and USDA loans to borrowers who qualify.
Many individuals who have filed bankruptcy think that it is unlikely that they will be able to buy a home, but this is not the case. Typically, a couple years after a bankruptcy discharge, many will be able to qualify for a home loan. Depending on the type of loan you are seeking, the waiting period can vary, but rest assured, your dreams of homeownership are not over. We work closely with Florida residents who have previously filed bankruptcy to help them purchase homes when other lenders won’t.
If you have had credit issues or financial difficulties in the past, Associates Home Loan of Florida, Inc. can still help you with your homeownership goals. For more information on subprime loan options or purchasing a home after bankruptcy, contact us today.