Sub Prime Mortgages Arizona: Facts, Statistics, and How to Qualify
December 24, 2014Bad Credit Home Loans, Arizona: How to Buy a House When Your Credit Is Less Than Perfect
December 31, 2014A subprime mortgage,Arizona is one type of home loan that is available to Arizona borrowers with a low FICO score. Learn all the details of subprime lending to determine the right loan for your unique credit situation.
Many potential homeowners with low FICO scores find themselves denied by banks when they try to qualify for a mortgage. Nearly 1 in 4 Americans have a FICO score of less than 640 which is considered to be a subprime credit score. With a subprime score it can be difficult to qualify for a traditional home loan. However, there are other options available for a subprime mortgage Arizona. Certain loan types and programs can help borrowers with low credit scores qualify for a home loan.
One loan type that is available for subprime borrowers is a bad credit FHA loan. An FHA loan is backed by the Federal Housing Authority and will allow you to borrow about 96.5% of the value of the home you are purchasing. This means that you won’t have to come up with a large sum of money for a down payment. In addition, the government backing means that you will be more likely to qualify, even with less than stellar credit. This is because the government helps secure the loan for the bank in case of default. One important note is that you will pay monthly insurance on your loan. In additional to you principle and interest payments, you will also pay a PMI insurance payment. This is basically extra money you pay to help insure against default. PMI payments can range from $80 to over $200 each month, depending on the amount of the loan.
A second type of loan available to borrower with bad credit is a subprime mortgage Arizona. A subprime loan refers to a loan given to a borrower that represents a greater financial risk due to his/her credit score. A subprime loan is funded by a bank but does not have to meet the same underwriting guidelines as a prime loan. Subprime loans allow access to groups that would normally not have access to the credit market like people with low FICO scores. The most popular type of subprime loan is an adjustable rate mortgage or ARM. In an ARM, the initial interest rate is usually low but then adjusts after a period of time to above the prime rate. The low interest rate is usually locked in for anywhere from 2-5 years and can be as low as 2.5%. After the lock in period, the rate adjusts and can be as high as 10%. An ARM is a good option for borrowers who know they will have the credit to refinance to a traditional loan after the adjustable period or for borrowers who only intend to live in the home for a short period and sell the property before the rate adjusts.
Bad Press and Subprime Mortgages
Although a subprime mortgage can be a valuable tool in helping secure a home loan, many borrowers shy away from them due to recent negative press. Specifically, in Arizona, many politicians have gone as far as to label subprime mortgages as predatory lending practices. They claim that subprime loans are designed to charge high interest rates for people who cannot afford them. Proponents of subprime mortgage Arizona programs claim that subprime loans allow individuals access into the home marker who would otherwise be shut out due to credit history.
So, who is right? Is a subprime loan a predatory tool used by banks, or is it a legitimate loan program to help bad credit borrowers?
One argument made by politicians looking to discredit subprime lending in Arizona is that it unfairly discriminates against low income borrowers. This is simply not true, most subprime borrowers in Arizona are above the median income line. Most subprime mortgages tend to be second mortgages that are purchased as investment properties. Subprime borrowers also own fewer low value homes than traditional mortgage holders.
A second claim against subprime ortgage Arizona is that minority borrower will be discriminated against and only offered high interest loans. A demographic study indicates that this is untrue. By analyzing zip codes and demographics, it was concluded that subprime mortgages are not more common in zip codes with a Hispanic population concentration.
Finally, another criticism is that subprime loans are unfairly given out to borrowers who are young without a substantial credit history. Subprime mortgages are not given out to mostly young borrowers. In fact, the average age of a borrower for a subprime mortgage was between 35 and 55 years of age. This indicates that subprime mortgages are not being used to penalize borrowers with insufficient credit history due to age.
When you examine the numbers, it becomes apparent that a subprime mortgage is not used by lenders to make money from the lower class.
Rather, a subprime mortgage is a tool that can help individuals with bad credit access the home buying market. If your credit score is less than 640, don’t lose hope. Contact a mortgage broker to discuss your subprime and non-traditional loan options.
Dennis Dahlberg
Level 4 Funding LLC
23335 N 18th Drive Suite 120
Phoenix AZ 85027
NMLS 1057378 AZMB 0923961
623-582-4444