The nonprime mortgage industry has been very misunderstood. Many nonprime myths pervade the market, making it look less favorable to many homeowners.
Unknown to many, nonprime mortgage loans have permitted many families to own decent homes and to keep them. If not for such loans, these people would be left homeless for the lack of financing options to cater to them.
The fears of nonprime financing came forth during the housing crisis. A decade ago, the U.S. housing industry came crashing down, taking the whole economy together with it.
Much of the blame was pointed to subprime mortgages.
However, the true cause was the failure to take necessary measures to check if the borrowers would be able to repay the loans.
Nonprime loans have been scarred ever since.
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Crushing Down 4 Nonprime Myths
We want to eradicate the unnecessary fear brought by misconceptions about nonprime loans. Let us look at the most common nonprime myths and expose the good aspects in them that have been taken for granted.
Fear Nonprime Mortgage Loans.
There is no reason for you to fear a nonprime loan.
Most of the fear comes from knowing too little, or believing that the misconceptions are true. Equipping yourself with the adequate knowledge helps you understand how nonprime financing works.
As time passed, much has changed about nonprime loans. The new generation of nonprime financing is considered by many experts as safer and better than they were before.
The housing crisis caused lawmakers, legislation and industry experts to fortify existing
lending laws and drafted new regulations and guidelines. While these laws encompass ‘conforming’ mortgages, they still serve as the anchor for many nonprime lenders’ rules.
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Anyone with a blemished credit can get a nonprime loan.
In the past, there might be some truth to this myth. It’s close-cousin, the subprime financing, were selling like hot cakes. They were made available for people who didn’t want to go through the hassle of the income or credit verification. Basically, anyone can get a subprime loan even with bad credit. It was a very risky business.
Lenders today are a lot more learned and cautious.
Individuals who carry a credit score of 660 or below won’t be able to get a prime mortgage loan. However, this person may take a nonprime loan. However, this does not mean that everyone with a
poor credit can be approved for the financing.
To make up with the risk of having blemished credit, nonprime lenders will perform some verification to check if the borrower has the ability to repay the borrowed money and its interest.
All nonprime loans require ridiculously high down payments.
Another Nonprime myth is the need to put a ridiculously large down payment. While it is true that some lenders require a down payment of more than 20 percent, many lenders will allow you to take a lower down.
Moreover, lenders will most likely request for a down payment to compensate for the risks. Experts believe that when a borrower shells out a significant amount of down payment, it will be hard for a borrower to drop the loan before paying it off.
This mortgage financing requires a large down payment.
20 percent down payment is most common for nonprime mortgage financing. This is very similar to what prime lenders may require from borrowers taking conforming loans.
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Nonprime loans do not need a pre-approval.
Simply put, whatever kind of mortgage loan you take, always
get a pre-approval.
When purchasing a property, always start by obtaining a mortgage loan pre-approval from different lenders, nonprime or otherwise. This will help you establish your footing before proceeding to house hunting.
During the pre-approval process, the lender will have to take an in-depth look at the documents you have. They will also be evaluating your credit standing. Based on this, the lender will present an offer sighting the amount of money you will be able to borrow and the interest that will apply on it.
This is also a practical move because lenders reviewing your documents may give you some useful advice to help you improve your credit and gain better financing. If there are issues that need some fixing, you may work on it first before proceeding to the underwriting.
If you believe that a pre-approval ties you down to a lender, you are wrong. You are not obliged to take the offer. Likewise, it is also not a guarantee that a lender will provide you with the financing.
This means that you can ask many lenders to pre-approve you of a loan. You can then use them to compare their offers side by side. This should allow you to choose the loan that has favorable terms depending on your situation.
More and more lenders and borrower are viewing nonprime financing in a positive light. Nonprime myths should be replaced with proper knowledge about this kind of financing. Moreover, may it be a nonprime loan or a prime financing, you should be responsible as a borrower. Your attitude towards paying any debt, and your desire to pay if off will determine how loans will impact your life.
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