SUBPRIME LOANS:

If you have bad credit, you may not qualify for a conventional loan or a lower down payment loan. In this case, you may consider a subprime mortgage. Because of the higher risk associated with lending to borrowers that have a poor credit history, subprime loans typically require a larger down payment and a higher interest rate.

You should study the specific terms of a subprime loan that you qualify for to determine if it is a loan that will help your financial situation. Subprime loans are one way for you to get into the home you want at today's price. If you already own a home, a subprime loan can give you an opportunity to clean up your credit and ultimately refinance into a lower rate at a later time. If you have a mortgage, you can look at refinancing more than what you currently owe on the house and get cash back for the equity you already have in the home. This cash out could be used to pay off higher rate credit cards, bankruptcy, foreclosure or collections and liens. It could be a good way to clean up a troubled credit history, save money each month and start rebuilding your credit worthiness.

Whether for a purchase or refinance, subprime loans should typically be used as a short term solution, approximately 2-4 years. During that time, you can work to clean up your credit and qualify to refinance into a lower risk, lower rate loan.

Several risk factors are taken into consideration when evaluating a borrower for a subprime mortgage, the most important being your payment and credit history. Your debt to income level, employment history, type of property and assets are other factors that are taken into consideration when determining if you qualify for a conventional or subprime loan.