Not everyone has great credit or a perfect income situation, and just because you’re in a position where one or both of these areas is lacking doesn’t mean you can’t be in the market for a new home. There are options available for low credit home loans, and one such option is the subprime loan.
A subprime loan is money given by a bank or lender to a borrower with less than perfect credit or a limited income situation. At American Loans & Mortgages, we’re happy to offer subprime loans for people who might not otherwise qualify for a mortgage. Let’s look at some of the benefits you can receive from a subprime loan, plus a few considerations to keep in mind.
Ease of Approval
Not everyone who needs a loan has the proper financial situation to be approved for one, particularly when it comes to credit score. In most cases, banks or other creditors turn down borrowers with defaults in their past, or with too much outstanding debt on balance sheets.
In a subprime loan, someone in this position can still obtain money. Credit thresholds are lower – as low as 580, in fact. Loans can still be made for potentially large sums of money, and bank statements without tax returns can be used to establish income.
Subprime loans are perfect for people who need to pay other debts, which harm a credit score. You can receive a subprime loan, pay off the debt, an then work to make payments on the subprime loan. Subprime loans are often used to help fix a credit score that’s gone down.
There are a few considerations to keep in mind with subprime loans:
- High costs: Borrowers in the subprime market present a higher risk to lenders than those in the prime market, and therefore there will be higher interest costs associated with them. These compensate the lender in case of a default, which is more likely in the subprime market. There are also higher processing fees and other fees involved.
- Income demands: Although there’s less strictness regarding credits cores, lenders still must see sufficient income and cash flow to approve a subprime loan.