Subprime Mortgages – How Large Of A Down Payment Do You Need?

Subprime mortgages offer more flexibility with down payments than conventional home loans. You can choose to put nothing or over 20% down. And with a subprime mortgage, you don’t have to worry about paying private mortgage insurance.

Zero-Down Mortgages

Zero-down mortgages allow people with little money for initial costs to buy a home. Even with a zero-down mortgage you can expect to pay loan fees and points, which can still add up to a couple of thousands. However, there are financing plans that wrap loan costs into the mortgage.

The basic zero-down mortgage consists of one loan or two. If your lender decides to split your mortgage, you may need to find another lender to carry the second mortgage.

Zero-down mortgages come at a cost of higher interest rates. They also have larger monthly payments since the mortgage is for a larger amount.

Large Down Payments

A large down payment adds equity to your property quickly. You also have lower monthly payments by having a smaller mortgage. In some cases, a large down payment can qualify you for a loan, in spite of a poor credit record.

If you have the cash for a large down payment, you may also want to look at purchase points up front. You can lower your interest rate, saving you thousands if you keep the loan for several years. You can also waive prepayment fees, usually by paying a point.

Subprime Lenders

Subprime lenders offer a variety of financing solutions. If you are unsure how much you want to borrow, start by requesting quotes from lenders for different financing options. This way you can compare numbers and look for a lender who offers the best rates and terms.

You can use the internet to gather this information quickly. You can get quotes through websites or email. However, don’t give a lender permission to submit a financing bid until you are ready to apply. Every time a financial company checks your credit history, your credit score takes a hit. Even if you don’t follow through with the loan, it still affects you. Fortunately, most lenders are willing to provide quotes to allow you to make the best financial decision.

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FHA Mortgages - Federal Housing Administration

The Federal Housing Administration has been helping Americans get loans for over 70 years. Here’s an overview of the Administration, better known as the FHA.

Federal Housing Administration

The Federal Housing Administration is, ironically, more of an insurer than anything else. The FHA does not provide mortgage loans to you and me. Instead, it insurers mortgage and home loans provided to us. This makes lenders more willing to write loans for people that otherwise would be frowned upon.

The insurance aspect of the FHA is a fairly common tool used by the federal government to promote a specific behavior. Student loans are a classic example. An 18-year-old person typically couldn’t qualify for a loan to by a sandwich, but student loans are plentiful and easy to get. This is because the federal government wants to promote education and does so by guaranteeing the loans. If you fail to pay the lender back, the government is on the hook. The FHA provides similar insurance for the purpose of promoting homeownership in the United States.  In fact, the FHA is biggest mortgage insurer in the world, doing so for over 30 million mortgages since it was created in the 1930s. 

FHA loans are a very attractive mortgage option. Unlike a private mortgage, FHA loans are designed to cut you a major break so you can buy a home. The break comes in the form of a very small down payment. The typical down payment is only three percent, a huge break compared to the 20 percent most traditional mortgage lenders like to see.

To the surprise of many, the FHA is not funded with our tax dollars. Instead, it is funded by premium payments. If you go with an FHA loan, you will have to pay the insurance premiums the FHA charges in providing the loan. This typically occurs for the first five years of the loan or until the debt ratio on the home is roughly seventy eight percent. The figures change, so make sure you get an accurate depiction if you are considering an FHA loan.

In many ways, the FHA has revolutionized the mortgage industry. When it was formed in 1934, homeownership was a fairly rare occurrence. To buy a home, you typically had to provide a down payment equal to half the value of the home. The mortgages were also fairly short with some being only three years. At the end of that period of time, you had to come up with the total then due. Talk about a tough real estate market!

Ultimately, the FHA serves as a stabilizing force in the real estate market. Private lenders can change mortgage requirements for better or worse, which can dramatically impact the ability of people to buy homes. The FHA smoothes out these fluctuations by always providing a mortgage loan resource.

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