Prior to the housing market crash in 2008, banks and mortgage companies offered a vast selection of subprime loan products. These types of loans became more popular over the FHA loan product because a buyer could obtain 100% financing in the form of an 80% first mortgage and a 20% second mortgage to purchase a home with credit scores down to 500. There were also exotic mortgages offered to all credit types of borrowers where they could choose which type of mortgage payment they wanted to make each month. These products were called “Pick-A-Payment” loans. For a pre-determined amount of years, a person with this type of loan could choose to pay either the 30-year fix, 15-year fix, teaser rate or interest only payment. This type of loan became known as the “Neg Am” because of the negative amortization or unpaid principal that was added to the back of the loan.
Since the housing market crash these products no longer exist. Most banks do not offer home loans for credit challenge subprime borrowers. The current market has made an FHA loan the most popular for subprime borrowers. The Federal Housing Authority has been insuring mortgage for low income, first time buyers and credit challenged borrowers since the 1934. FHA insures loans for the purchase or refinance of properties. The current mortgage insurance paid upfront on an FHA loan is 1.75% of your loan amount and there’s also a monthly insurance payment due that’s either .80% or .85% of your loan amount. FHA monthly mortgage insurance is due for the life of the loan, so it’s important for a borrower to make their mortgage payments on time, increase their credit score and refinance into a conventional mortgage without mortgage insurance once a 20% equity position is reached.
My partner lenders will allow credit scores down to 500, with acceptable credit history, employment, income and asset qualifications get approved for an FHA loan.
Contact me to discuss in more detail.