Subprime Florida Home Loans: Know the Facts
So, you wish to purchase a home, but fear a less than stellar credit score will prevent you from finding a reasonable rate on a Florida home loan?
It’s an understandable concern, especially if your credit score is below 620. You may, however, be an ideal subprime lending customer. You just need to be educated about these types of Florida home loans before you commit to them.
Take caution
Experts caution people to carefully weigh the benefits and drawbacks of taking out a subprime loan. Possessing one and handling it well can help repair a damaged credit history, but a subprime loan can also cost thousands more in interest than standard Florida home loans.
By its very nature, subprime lending places lenders at risk. When all is said and done, that means banks and other players charge higher rates for subprime loans to compensate for potential losses from customers who may run into trouble or default. Moreover, subprime loans cost more because they are considered “nonconforming,” or not up to the standards of Fannie Mae and Freddie Mac.
Do you qualify for a subprime Florida home loan?
Borrowers can fall into the subprime category for any number of reasons and assessing how risky a customer is can be a difficult thing for lenders. The process is mostly reliant on an individual’s debt payment track record, as evaluated by subprime experts. In the end, customers get stamped with a school-like ranking: A, for those with the best credit and so on down the line.
Where someone falls on the scale depends on a number of things. And two Florida home loan lenders may look at the same borrower and arrive at two different credit grades because the categories aren’t set in stone. It’s not a straightforward process.
Someone with a generally good credit record, but who made a Florida mortgage loan payment 30 days late within the past year, could earn an A-minus. The grade of D could be the result of bankruptcy or foreclosure. The borrower’s general pattern of financial behavior is what’s considered the most.
A borrower’s credit grade determines a number of factors, including what rate the loan will carry and how much of a home’s value will be loaned. For example, on a 30-year fixed rate Florida home loan, a borrower just shy of an A rating would most likely be able to borrow 90 percent of a new home’s value at a rate a couple of percentage points or so above the going rate.
So, who is a candidate?
Now that you know more about howthe subprime process works, who should consider borrowing? Should you, as long as you’re aware of the dangers of exotic Florida home loans such as these?
Generally speaking, someone whose monthly obligations are swallowing too much of the weekly paycheck might benefit from Florida home loan refinancing at a subprime rate and taking out cash in the process to pay off debts. The cost over the loan’s lifetime will rise - but the tax-deductibility of mortgage interest makes it cheaper than the interest charged on most credit cards, auto loans and the like.
Also, subprime loans can help renters become homeowners. While the rate charged will be high, all it takes is a one- or two-year history of on-time mortgage payments to help demonstrate creditworthiness. That, in turn, could mean a less expensive refinancing down the road, assuming Florida home loan rates don’t spike.
Still, be aware that getting a subprime loan means much greater interest costs over time. Ideally, you’d try to improve your credit rating in order to receive approval on a basic Florida home loan. This is just an option to keep in mind otherwise.
