Mortgage Loans

Nonprime Mortgage Loans

A mortgage loan made for consumers who have a not-so-good credit history and are self-employed. These nonprime mortgages represent a second chance for those unable to qualify for conventional or government-backed mortgage financing.

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What’s the Right Nonprime Loan for You?

Shopping and comparing rates is the best option to find the right nonprime mortgage for you. Getting to know its two main categories is the first step.

Adjustable-Rate Mortgages

Nonprime mortgages are typically adjustable-rate mortgages (ARMs). ARMs have interest rates that change periodically throughout the life of the loan. They may be hybrid ARMs with fixed rates for the first few years of the loan and  adjust thereafter.

Fixed-Rate Mortgages

By their name, fixed-rate mortgages (FRMs) offer the same interest rate from the onset until the end of the loan term. nonprime mortgages can be offered as FRMs with the standard 30-year term. 

Nonprime Mortgage Loans – FAQs

What is a nonprime mortgage?

It stands between subprime lending minus its risky practices in the past and alternative lending that allows for other financial documents for qualification. The act of making nonprime loans is also called second-chance lending.  

Nonprime mortgages are for consumers with poor credit history owing to a short sale, bankruptcy, foreclosure and/or other negative credit events a few years back. They are also for the self-employed borrowers whose lack of traditional documents such as pay stubs to verify income often bars them from traditional mortgages.

What is a nonprime credit score?

Lenders have varying standards on what constitutes nonprime and what credit scores they require in turn. For instance, some lenders put nonprime scores ahead of subprime scores, but not higher than prime scores. Other lenders that classify nonprime as a sublevel of the subprime category, which places scores below or around 600.

What is a nonprime mortgage rate?

These are rates charged on nonprime mortgage loans. Rates generally depend on credit scores, as noted above, the size of down payment, asset reserves, negative events noted on your credit report, and prevailing market forces at that time of your loan application.

Is it true that nonprime mortgages require higher down payments?

It depends on the lenders and the purpose of the loan. If you intend to buy a primary residence with that nonprime loan, your loan-to-value ratio — the percentage of the purchase price you’ll borrow — can be as high as 90%. But if the purchase loan is for an investment property or loan flipping, the maximum allowable LTV is lower, e.g. 70%.

What are examples of nonprime mortgages?

The classification of what constitutes nonprime is flexible because it’s the lenders who will make and package these loans for the public.

For example, lenders can originate these mortgages using alternative documentation such as personal and business bank statements and other income sources. This lending practice results in stated income loans and bank statement loans.

Another instance would be interest-only mortgages whose roots are primarily subprime. Subprime primarily caters to bad credit borrowers or those with high LTVs but these loans have been closely regulated more than ever and today’s interest-only loans are safer compared to their predecessors.

Alternative-A loans can also be grouped as non-prime. Examples of this type of loans are low/no documentation loans, stated income/stated asset (SISA) mortgages, and no income/no asset (NINA) loans.

How do I apply for a nonprime mortgage?

Applying for a nonprime mortgage basically follows the same process as with conventional or government-backed mortgages. Here’s a run-through:

  • Contact lenders or mortgage brokers to help you find lenders. Let them know you are looking for a mortgage.
  • Gather rate quotes from lenders.
  • Compare these rates, as well as fees. Annual percentage rate (APR) is one way to look at how a loan would cost but it’s applicable to fixed-rate mortgages only.
  • During the initial stages of your loan shopping, be sure you know your credit score or at least have a copy of your credit report, which is available for free once a year at
    www.annualcreditreport.com. Report any errors.
  • Know your credit score so you can properly leverage your rate.
  • Keep your financial statements at hand and updated. Pay stubs if you are employed and tax returns and related transcripts if you are self-employed, as well as bank statements.
  • Apply for prequalification for a streamlined loan process. It’s easy to shop for a home with a budget.
  • Fill out a Uniform Residential Loan Application. Once you submitted your completed form, the lender will pull your credit information and begin evaluating your ability to repay the loan.

Can I refinance my nonprime mortgage?

Yes, you can refinance your existing nonprime mortgage in order to lower your rate or change your term. You can also refinance to take cash out of your equity.  

You can do the refinance with your current lender or find a new lender, whichever can give you better terms or customer service.

To prepare for your refinance application, heed these pointers:

  • Determine if you have enough equity to refinance.
  • Review your credit report for any errors. More importantly, find out if your credit score can meet lenders’ requirements.
  • Build an employment history to show your income can support your new mortgage payment.
  • Find out if your loan has a prepayment penalty.

Why do I need to check if my mortgage has a prepayment penalty?

When you refinance or sell your home, your mortgage loan is effectively and technically paid off. For some loans, you have to wait a while before you can do either or you’ll be slapped with a prepayment penalty.

This prepayment penalty can be a percentage of your outstanding loan balance or the interest costs for a couple of months.

It’s best to ask lenders about this term before you signed up for the mortgage.

Where to find nonprime lenders?

We can connect you with a lender who matches your need for a mortgage. The result would depend on your FICO score, income, asset, debt-to-income ratio and other qualifications.

Why do I need to shop and compare mortgages and rates for that matter?

It’s a main rule in any mortgage endeavor. You’ll never know if you qualify for an FHA, conventional, or non-prime mortgage if you don’t look around. Rate comparison is also important to give you a head’s up on the costs of getting a mortgage.

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