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There are many options
available if you have had
trouble getting a loan
because you don't fit the
conventional credit
guidelines of most lenders.
These options are called
sub-prime mortgages.
A sub-prime mortgage is
made by a lender who
specifically allows for underwriting
conditions, such as, lower
credit scores, late mortgage
payments, too much total
debt, collection accounts,
previous bankruptcy, or even
a foreclosure. A credit
matrix determines the
interest rates, which are
labeled as Alt-A, B, C, or
D, depending on the extent
of your credit situation.
There is a trade off for
getting a sub-prime
mortgage, and that usually
will be a somewhat higher
interest rate, and your
maximum loan to value can be
less than a conventional
mortgage. Lenders have
to offset their perceived
higher risk loan with a
higher yield in order to
make a loan. The main
compensating factor for bad
credit is home equity, the
more you have, the better
the rates.
The mortgage industry has
implemented substantial
changes over the last
several years to make
sub-prime mortgage rates and
underwriting guidelines more
competitive and easier to
qualify. A sub-prime loan
can provide necessary
financing until your credit
is good enough for a better
loan.
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