Mortgages

There are two different lender markets, prime and sub prime mortgage lenders. Unfortunately it’s hard to identify these markets from each other except that sub prime lenders are usually higher than prime mortgage lenders.

Sub prime lenders normally accept borrowers that prime lenders would turn down. Some lenders offer both sub prime and prime mortgages and usually have the best option because they first try to get the borrower approved for a prime mortgage before a sub prime mortgage loan.

A sub prime lender bases its rates similar to a prime lender in accordance to credit ratings, credit history and down payments. But unlike prime lenders, sub prime lenders are not required to carry escrow on loans to cover hazard and fire insurance premiums, mortgage insurance premiums and property taxes.

Sub prime lenders commonly will have higher interest rates and fees because they take on a high risk market. More sub prime loans will fall into foreclosure than those of prime loans. They also have to charge higher fees and interest because more of the applications are processed and rejected and marketing costs are typically more for sub prime lenders.

Although sub prime lenders will benefit borrowers who don’t get accepted for prime loans, that can be a disadvantage to individuals who do qualify for prime loans. The best way to avoid this is to check with a number of lenders. Don’t be quick to jump on the first one that makes an offer, especially if they aggressively marketed the loan to you.

Many sub prime lenders are aware that borrowers will be accepted for prime loans, but these lenders work on commission and will process a prime borrower for a sub prime loan. It is up to you, to make sure you don’t get fooled and end up paying more on interest rates and your home mortgage loan.