Subprime loans aren’t inevitable. How to shop for the best deal

Those with poor credit need the best deal they can find, even if it’s subprime

The mortgage industry has enjoyed huge profits for the last five or six years. Housing prices are up; interest rates are low. That makes for a great environment for those lending money for housing. While lenders do not make as much money on a loan issued at 5% as they do on one issued at 8%, they have been able to make up the difference in volume, simply by issuing more loans. 

One particularly profitable form of mortgage lending is the so-called “subprime” loan, which is a loose category of any loan that has less than ideal terms. These loans are often issued to borrowers with a poor credit history. While these loans are certainly more risky for the lender, the risk is offset by an often substantially higher interest rate to be paid by the buyer.

What if your credit is less than ideal? Are you destined to borrow money at 10% instead of 6% because of your credit history? How can you find the best deal on a subprime loan?

First of all, even if your credit history is poor, do not automatically assume that a subprime loan is the best you can do. If you seek out a high interest loan, a high interest loan is all you will be offered. Start by trying to obtain the best loan terms you can get. Talk to your own bank or credit union and see if they can help you. If you have a long history of doing business with them or if it’s a small lending institution, you may have better luck than if you are doing business with a large corporate bank.

If you have no luck with your bank, you should then begin talking to some of the larger mortgage lenders in your area. While they may not be able to help you, they may be able to direct you to someone who can. Many large mortgage lenders have divisions that specialize in subprime loans and the representative may send you to talk to another agent from their own company. No one in the lending industry is going to turn away a potential customer, so if someone can help you, they will.

Talk to your friends. Do you have any friends or relatives with problem credit who have taken out a mortgage? Talk to them and ask with whom they did business.

The last thing you want to do is talk to one of many predatory lenders who specialize in taking advantage of those who are desperate. Those include, but are not limited to, those companies that put signs on telephone poles. Those companies are not interested in lending money to you; they are interested in providing you with a loan that you cannot repay in order that they may take the title to your house!. This scam is known as deed theft.

And losing the house that you are trying to buy is the last thing you want. What you want is the best possible deal that will allow you to live in the house of your dreams.