If you do not have a great credit score, you might find that you do not qualify for conventional or even FHA financing. In fact, even if you do have good credit, but your income is not consistent, such as you are self-employed or work on commission, you still might not qualify for those programs because of the new Dodd-Frank Act of 2010, but that does not mean you will not be able to secure a loan – there are more options out there for you, including a subprime home loan. Finding a place to apply for this loan is not an impossible feat as many people have made it out to be, as time passes and the mortgage crisis gets further and further behind us, more and more lenders are offering these types of programs.
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Where to Look for Subprime Lenders?
Many people overlook the possibility of obtaining subprime financing from a large bank. Immediately following the housing crisis, yes, fewer banks were offering these programs, if any. This was because everyone was scrambling to figure out which end was up and how to come out of the crisis without having to close their doors. Fast forward to today and more lenders are willing to take a chance on borrowers. This is not to say they are offering no documentation loans any longer because those are not allowed by law. What they are offering, however, is alternative documentation loans for those borrowers that might not qualify the traditional way, which means they do not meet the largest requirement of the Qualified Mortgage guidelines, which states that borrowers can properly document their income. Big banks including Chase and Wells Faro are offering subprime loans to borrowers with good credit but need alternative ways to document their income, such as banks statements.
If you do not have the credit scores that the big banks require, you should seek other residential lending entities Credit unions and privately owned banks are amongst your best bets when it comes to qualifying for a subprime loan. These banks have an advantage over any other because they typically keep loans on their own portfolios. If they do sell the loans, they sell to their own private investors, who they know well and understand their requirements. This means that the banks/investors can set their own requirements and cater to a market that the traditional lending market would turn down.
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Everyone Must Meet the Ability to Repay Rules
Aside from the fact that certain lenders can get around the Qualified Mortgage guidelines, offering borrowers a less traditional loan, everyone must meet the Ability to Repay Rules. This means that the lender does its due diligence in determining that a borrower can afford the loan. What this effectively means is that the bank is not providing you with a loan based on the premise that you have income without you actually proving it. You do not have to necessarily provide paystubs and W-2s, but you have to provide proof that you receive income. This is typically done with the last 12 months’ worth of your bank statements. If you have another way to prove receipt of your income, you will have to run it past your lender to see if they will accept it.
That being said, applying for a subprime loan can be done online with a variety of lenders; over the phone; or in person. The best thing you can do is contact at least 3 lenders to see what your options are since you are not taking on a standard loan. Because subprime loans do not fall under the QM guidelines, there are fewer restrictions the lender must abide by, which could mean higher fees and different terms. This is not to say that any lender will take advantage of your situation, but it does mean that you should shop around and compare all aspects of the loans offered to you so that you can determine which would serve your financial purposes the best, not only now but in the long run as well.