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Read below to learn what a B-Lender mortgage is, who can benefit from it, and how it works. We will go through the pros and cons in due course so that you may arrive at the best decision.
With terrible credit or just an imperfect financial history, it can be really hard to get approvals for a traditional mortgage. A subprime mortgage is the alternative financing option that helps out borrowers who cannot qualify for normal loans. Alternative mortgage lenders are designed for individuals with lower credit scores, thus enabling you to achieve homeownership even if you have financial issues in your life.
Read below to learn what a B-Lender mortgage is, who can benefit from it, and how it works. We will go through the pros and cons in due course so that you may arrive at the best decision.
A subprime mortgage is a loan issued to a borrower with either great or limited credit records. The loans have higher interest rates compared to other conventional mortgages, where lenders take on increased risks in accepting those people who have low credit scores.
That being said, alternative mortgages generally are issued to those individuals with credit ratings below 620. Other factors, such as payback history, income stability, and current debt levels, will more than likely be considered by the lenders.
If you’re someone who has poor credit, high debt, or inconsistent income that keeps you from being qualified for a traditional mortgage, then a subprime mortgage might be effective. Following are a few scenarios:
A poor credit score tends to be an impediment to standard credit. Alternative lenders are more generous and will consider credit and approve loans to those with a history of financial mishaps, consumer proposals, and even bankruptcy.
Many self-employed borrowers reduce their taxable income by writing off business expenses. That's great from a tax standpoint, but it makes you appear to earn less than what you need for a mortgage. We work with lenders who will use your gross income and other financial factors to determine what you truly can afford.
Alternative lenders can easily stretch your Gross Debt Service and Total Debt Service (GDS/TDS) Ratios to 60%, whereas the traditional prime lenders will lend up to 45-50% GDS/TDS. A significant increase in affordability.
Subprime mortgages vary from traditional loans in several ways, mostly because of the added risk. Here’s an overview of how the process works:
To get pre-approved for an Alternative mortgage, you will have to document your income, assets, and credit history. Your credit score is pulled, but it will not be the major determining variable.
B-Lender mortgages usually carry higher interest rates. The rate you will obtain depends on your credit score, the amount you borrow, and the terms dictated by the lender. Some subprime loans are also available with adjustable rates, meaning that the interest rate may change over time.
Many subprime loans require a larger down payment than traditional mortgages. You can count on putting down at least 20% of the home's value. This reduces the lender's risk and could improve your chances of approval.
Alternative mortgages are often shorter. Even though amortizations can be stretched to 30 years, the mortgage terms are typically 1-2 years. They’re meant to stay shorter in order to fix the borrowers’ issues, such as improve credit or increase income. B-Lenders ideally try to upgrade the borrowers to the prime lending side, once the issues have been rectified.
Repaying a subprime mortgage is no different from repaying any other loan. However, some subprime loans include prepayment penalties, so you have to check the terms before you pay off the loan early.
Even though subprime mortgages are more accessible, you can still improve your chances of approval and get better terms by taking these few steps.
Putting more money down reduces the lender's risk and demonstrates your commitment. This may help lower your interest rate with a larger down payment.
High GDS/TDS ratios will work against you in trying to get a B-Lender mortgage. Concentrate on paying off credit card debt, personal loans, and such ahead of time before making the application.
Check your credit report for errors or inaccuracies. Correcting errors on your credit report can help improve your credit score and lead to even better terms from loan providers.
Alternative lenders do not wish to keep you on the expensive side forever. Come up with a solution you’re going to implement in order to switch to the cheaper, Prime mortgage lending side.
We're here to answer your questions and get you on your way to the best Home Loan experience.
