Subprime lending is the news of the week around here. We are seeing more and more late payments and foreclosures. Last year the US foreclosure rate rose 42% from the year 2005. One of the reasons for higher foreclosure rates is subprime lending. Many lenders have approved mortgages for borrowers that they probably shouldn’t have, especially these subprime lenders. These are lenders who take on the non-conforming, hard to qualify borrowers. It is easier than you think to get a loan. With little or no money down and stated income you can have your own home. In many of these cases the borrowers are most likely stretching themselves thin. I’m not trying to stereotype but if you don’t have much money to put down, your credit isn’t stellar, and you have to state your income, you may not be in the best position to take on an expensive mortgage payment. Many times this can work out and it was a good investment, BUT as I stated before the foreclosure rate is rising.
“Stating” your income means the lender only verifies employment and does not have to look at your tax returns or bank statements (in most scenarios), they go off of what you “state” you make. So a warehouse employee can “state” he makes x amount of dollars, which he may or may not…that is up to the lender to decide. Let’s say he doesn’t make as much as he stated and he is drowning in credit card debt. Well, because of his subprime status he received a horrendous rate or a horrible negative amortizing mortgage. Now he can’t pay his mortgage, nor can he refinance because his credit score continues to drop and he has no more equity. I think you get the picture.
What I suggest you do no matter what your status is, is to talk with a mortgage broker and have them analyze your Debt to Income ratio and figure out what you can actually afford. They can also explain what programs would best fit your situation. Another reason for foreclosures is because borrowers didn’t actually know what kind of loan their broker got them in until they started paying the bill and realized it was way more than they expected. The best scenario would be to figure out why you are in sub-prime status and how you can get out of it, and until then, wait to buy the house, or opt for a cheaper one. As always, if you have any questions or comments, please contact me at Ryan@GoMetroLoan.com or 805-540-0866.