Why You Should Avoid Subprime Lenders

With the financial markets in crisis and the cost of homes plummeting, the subprime loan options that were responsible for this crash in the first place are becoming less common. But there are still lenders offering these risky loans, and this article will convince you to avoid what may seem like an offer too good to refuse, especially if you are having trouble finding a traditional loan.  Here are three reasons why you should avoid subprime lenders!

High Interest Rates

The most obvious reason to avoid subprime loans is the high interest rate that comes with them.  In most cases, if you fall into the subprime category you represent a higher risk than normal for the lenders, and the increased rates protect their investment.  Inevitably in this category a certain number of borrowers will default on the loans, and the higher rates ensure that the lender still makes money.  This means that you will be paying more for your house than it may ever be worth, and it essentially no longer becomes an asset, but rather a liability. 

Questionable Business Ethics

Another reason to stay away from subprime lenders is their track record of questionable business practices.  The bailouts of the last few years are proof that many financial institutions have been making unwise business decisions, and avoiding them is a good idea.  You should only deal with lenders who have a good reputation and a proven track record of a high level of customer service.  Your REALTOR® can give you advice on lenders who fall into this category.

Increasing Your Debt Load

If you are considering a subprime loan, you likely already have some debt and perhaps even a credit score problem.  While getting a subprime loan may seem like your only option for homeownership if you fall into this category, getting a subprime loan will just put you further into debt.  There are other options for getting a mortgage, and seeking out the advice of a financial advisor can prevent you from making an unwise financial decision.

Homeownership should always be a sound financial decision, and despite your current financial position there are good options.  With a little knowledge and a bit of shopping around you will find a mortgage to suit your budget and needs, while protecting your investment at the same time.