Choosing a Subprime Lender: Four Tips

If you've had credit problems, the world of mortgages may seem like an exclusive club, where bouncers stand between you and your financial future. Fortunately, the availability of subprime loans has greatly increased in recent years. The subprime loan, also called a bad credit loan, is specifically for borrowers with spotty credit. The key to making a bad credit mortgage work in your favor is knowing how to select a legitimate subprime lender.

The most important thing to remember when researching subprime loans is that you are not subprime. A lender that makes you feel like you have no choice but to accept high fees and restrictive terms is a lender you should avoid. The legitimate lender's primary concern will be your realistic ability to make the loan payments as scheduled.

Here are four essential tips to help you select a subprime lender:

  1. Compare terms and fees. Ask at least three prospective lenders to provide you with the terms, and a complete list of fees, in writing. Review and compare this information carefully.
  2. Be concerned with prepayment terms. You want to have the option to refinance your mortgage with a less expensive, traditional program, as soon as you can qualify. If the prepayment period and fees are excessive, you could be locked into your subprime loan longer than you want to be.
  3. Be cautious about upfront fees. Reputable lenders don't normally request upfront loan fees. The only fee you should be charged upfront is a nominal credit application fee. Excessive charges payable before loan funding may indicate that the lender is trying to take advantage of you.
  4. Assess your lender's character. Never allow a lender to pressure you into borrowing more, overstating your income, or signing an agreement that isn't completely filled out. These are signs that the lender isn't concerned with your realistic ability to repay the loan.

Selecting a reputable subprime lender can be your first step to repairing your credit and securing your financial future. Those bouncers at the mortgage loan door aren't keeping you out; they're just directing you to another entrance.

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