After the housing crisis, subprime lenders seem to go by the wayside. It was rare to find a lender willing to write a subprime loan. Fast forward to today and you’ll find numerous lenders vying for your subprime business. How do you choose the best subprime lender, though?
Keep reading for helpful tips on how to make sure that you choose the lender that is right for you.
We can’t stress this enough. You should get quotes from at least three lenders, if not more. This gives you the opportunity to see what options you have. Because subprime loans aren’t regulated like FHA, VA, USDA, or conventional loans, you’ll find loan offers that are vastly different.
When you shop around, you can compare the options that each lender provides. Look closely at the terms of the loan, meaning how long you will have to pay the loan back as well as the interest rate. You’ll also want to pay close attention to the closing costs. It’s not unusual for lenders to charge you several origination points just to do the loan. This is in addition to the thousands of dollars in standard closing costs.
Read the Fine Print
Again, because subprime loans are less regulated than other loan types, you may find different terms offered to you that include a prepayment penalty. If your goal is to have the subprime loan for a short amount of time and then refinance when you improve your credit, you won’t want a prepayment penalty.
You should also read the fine print for any other ‘odd’ terms on the loan. Your subprime lender should readily discuss all of the terms with you and be able to answer your questions. If they seem to rush you through the paperwork or don’t want to answer your questions, it may be best to look elsewhere.
Don’t Pay Fees Before you Close
If a subprime lender asks for payment upfront, it’s a red flag. Like any other loan, you shouldn’t have to pay anything until you get to the closing. This isn’t to say that you won’t pay a lot of fees, such as origination fees, underwriting, escrow fees, appraisal and inspection fees. You will pay them, but everything gets paid at the closing, all at once.
If a lender claims that you have to pay a point or two upfront, look elsewhere. Reputable subprime lenders will give you a Loan Estimate within 3 days of your loan application and only require payment of the closing costs when you actually close on the loan.
Know the Programs
Each subprime lender will offer different programs. For example, you may find some that offer LTVs up to 90%, while others allow you to get a loan without paystubs, using bank statements instead. Ask each lender about the programs that they offer so that you know what to expect.
Only you know what you need. For example, if a high LTV is important to you, focus on lenders that offer low down payment loans. If you need a lender that doesn’t require you to have a W-2, look for lenders that allow alternative documentation. Asking the specific questions that you have will help you yield the best results.
Get What You Need
Make sure that you look at the big picture when you take out a subprime loan. Don’t focus on the interest rate or term alone. Look at them together. If you focus on the interest rate alone, you may overlook an excessive term or a prepayment penalty.
Write down what you need out of a mortgage and find the subprime lender that offers it. If you don’t find it within the first three lenders, just keep shopping. Subprime lenders can make their own rules and have their own niche programs. It’s worth it to keep shopping around until you find the lender that offers exactly what you need
Subprime lenders aren’t the ‘scary lenders’ they were before the housing crisis. Today, they are your standard banks that you would never guess offer this type of loan. Shop around and ask a lot of questions in order to find the subprime loan and lender that is right for you.Click to See the Latest Mortgage Rates»