To fully understand what you are getting yourself into, first you should know what a subprime mortgage is.
What is subprime mortgage?
So, a subprime mortgage is a special type of loan that is granted to individuals who have a very bad credit score and because of that, they can not qualify for a normal loan. Since subprime borrowers present a much higher risk for the lenders, subprime mortgages charge interest rates are above the prime lending rate.
Say you want to buy you and your family a nice house and you have more than good credit score and other solid financials. For you, getting approval for a home mortgage loan is relatively painless.
On the other hand, we have a John Doe who has a relatively bad credit score and obtaining a mortgage loan for John is extremely hard. For people like him and others, there is a special market, that is called a subprime market.
Usually, to get an approval for a home mortgage loan, you would need three main things.
- A down payment big enough – usually at least 20% of the total loan.
- Enough money to cover the closing costs associated with the buying process.
- A good credit score.
Lucky for John over here, there are more than several subprime loans specialists and they are much more generous than conventional lenders. Moreover, larger and more traditional lenders have seen the potential and profitability of the subprime market and they have begun offering their services as well.
Subprime mortgage lenders list
Capital One is a banking mega giant that bought out HSBC not too long ago. Oh, don’t forget that Capital One is one of the largest subprime creditors in the U.S.
However, company officials say that they have been more than hesitant to take on subprime borrowers since they have seen the subprime market is a very risky line of business and not many companies have been successful with it.
We all know what General Motors does. They make cars right? Well, they also have a special branch, GM Financial and they specialize in auto loans and leases. You might qualify for their loan if you have a credit score less than 620.
But beware, they recently got hit by a subpoena by the DOJ for certain documents relating to its operations going back as far as 2007.
It is not unknown fact that Wells Fargo has been a long leading mortgage lender, but thanks to the declining trend in lending around the globe, they have been searching for opportunities to recoup the lost revenue.
Since the great financial crisis of 2008, they have been extending their line of work to credit buyers who are seen as more of a credit risk.
Bank of America
Before the financial meltdown of 2008, Bank of America was one of the largest subprime lenders. Unfortunately, during this meltdown, they lost a lot… to be precise, they lost $50 billion. Because of this, it is uncertain if they ever will continue to be a player in this industry.
Citadel Servicing is actually billed as the largest subprime mortgage lender in the U.S. and they have a history of taking on some of the riskiest credit applications ever.
If you had a credit score as low as 490 you could actually qualify for a mortgage. They even turned it into a highly profitable business since they invented news ways of lending. For example, they repacked loans and made it into bonds and then they sold them off to investors.
Should I apply for a subprime mortgage?
Well, to be honest, here is a fun fact, subprime lenders don’t advertise themselves as much as they used to – mainly due to the financial meltdown of 2008.
If you have a bad credit score and you are trying to find the right subprime lender, the best thing would be to go online and search for one. Rules of the internet still apply, find as much information as possible, triple check them, check for longevity, transparency, terms of business, etc.