Those with less than perfect credit can secure a mortgage, but at a price. They will probably have to agree to above-market interest rates and unfavorable terms. In return, they get a chance to own a home and re-establish their credit.

Over 15% of all mortgages are subprime loans. These loans have been increasingly popular over the last few years. They were first issued in the 1980s, and in the 90s they experienced a boom. HARD MONEY LENDING is another niche for people with such poor credit, income, or other deficiency, that they don't even qualify for a subprime loan. Usually hard money lenders want a large equity cussion to protect their investment.

You can check your credit history to see where you stand. Every year you are allowed one free credit report from each of the three reporting agencies: Experian, Trans Union and Equifax. In addition, you can get your credit score online for as little as $6. Whether or not you are looking into taking out a loan, you should check your report. Make sure that everything is correct and there are no incorrect reports. Someone else’s mistake can drop your chances at securing a good interest rate and favorable terms.

In addition to your credit score there are many factors that lenders will consider. Your debt to income ratio, employment history, the type of property and your assets will all influence your mortgage. If your monthly mortgage payment exceeds 40% of your gross monthly income or if you have just started a new job, you might fall into the subprime category.

If you’ve looked up your credit score and it is low, then start shopping around for the subprime mortgage with the best terms. Don’t just go with any lender that will lend to you. There are some “lenders” that trap eager customers with excessively costly mortgages and abusive terms. Predatory lending costs borrowers over $9 million a year.

You must make sure that you understand (read them!) the terms and conditions of the mortgage. You probably won’t find a fixed-rate loan, but don’t let that stop you from looking for one, you might succeed. Subprime lenders usually include prepayment penalties and other not so friendly terms.

Don’t be afraid that talking to too many lenders will further damage your credit score. It won’t. And when talking to lenders, tell them exactly what your situation is. Don’t try to hide your credit history, tell them about it up front. Explain each late payment and derogatory report honestly. If you can account or document a delinquency with illness, job layoff, marital problems or other situations, do – they understand life happens.
The biggest disadvantage of subprime loans is that the interest rate can be 5% to 6% higher than the going mortgage rate. Four percent more on a $120,000 mortgage can add up to an extra $300 to the monthly payment. Over 30 years, it becomes an extra $100,000. So it is easy to see why most people use a subprime loan to get their credit back in shape and then refinance for a better rate.

Subprime loans are not all bad. They allow those with credit problems to buy a house today – at today’s price. The interest is also deductible on your income taxes. Sometimes, the advantages of owning a home are well worth the added cost in the long run.