SUBPRIME LENDING

So, you found the perfect home, you put the application in, for the financing, and when it comes back, you are disappointed to find out that you are denied credit by the traditional bank methods. Why? You may ask the Realtor. So, the first thing they will do is pull up your credit history. The lenders' will look at that to find out what kind of a risk you will be to them and if they should approve your credit or not.

Some of the reasons for denial could be foreclosure, repossession, non-payment of another loan, past due payments of credit cards and other bills and/or bankruptcy in past 7 years.

If you are refused a prime mortgage at a low interest rate, then the Realtor would go ahead and pursue your options for a sub-prime lender at this time. The term sub-prime lending is also known as B-paper, near-prime or second chance lending. In the United States, lenders who qualify for the sub-prime lending often do not meet the higher credit ratings and have poor credit ratings, and compromised credit history.

There are some studies that say that there are sub-prime loans gaining in popularity in predominantly black areas and also poor areas where people can't afford or don't have the better credit. They are pushing the black families into the higher finance charges. Sub-prime lenders purposely provide loans to African-American communities, which is called reverse defining, at a higher cost and less favorable conditions because it is advantageous to them. They make money off the lower class. The financing is higher and the interest rates are higher.

What can you do if you have "blemished" credit? You can try to get the best interest rate and finance charges of course. Your mortgage company and Realtor will do this, of course. You can save up and try to pay off as many of your debtors as you can and clean up your credit. The better your credit is the better your chances of getting a good loan. By the way, over half the people who get sub-prime home loans go into default because the loans have such high interest rates that the owners have a hard time keeping up with the payments. If you find that you can't get a home loan at this time, you may want to rethink your options and wait awhile and save up, clean up your credit and reapply.

Learn more about this author, Linda Scott.
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