The title of this article might seem like an oxymoron, but there are actually several key benefits of a subprime mortgage loan. A subprime mortgage loan is a mortgage with a higher interest rate, given to individuals with low credit scores or poor credit histories. Although subprime borrowers will end up paying more for the house they desire, they can actually benefit from this inconvenience.
Usually, subprime borrowers have had credit problems in the past. Perhaps they’ve had several accounts pushed into collections or maybe they’ve had trouble paying off their credit cards. Whatever the case, an individual with a credit score lower than 620 or 630 usually won’t qualify for a conventional loan, which means that they will have to pursue a subprime mortgage loan in order to purchase a house.
Some financial institutions are strictly subprime lenders, which means that they specialize in dealing with customers who have poor credit history. Other banks and credit unions offer both prime and subprime mortgage loans. Sometimes it’s better to go with a strictly subprime lender because they have more experience and because you don’t have to worry about being embarrassed about your financial situation.
The benefits of a subprime mortgage loan are simple. When you are dealing with poor credit, there are very few ways to raise your score. The world we live in is a little bit backwards – only those who don’t need it are usually extended credit. If you’ve had trouble in the past, it may be difficult (if not impossible) to obtain a loan or line of credit. And without a way to prove you new-found economic responsibility, it is that much harder to raise your credit score.
However, if you decide to take out a subprime mortgage loan, you have an opportunity that probably will not come in another package. One of the quickest ways to boost your credit score is to make timely and full payments on a mortgage – whether subprime or not. So even though you’ll be paying a higher interest rate, you’ll be improving your credit score. Once you’ve improved your credit score, you’ll qualify for better interest rates in the future.
In the past, it was almost impossible for an individual with a low credit score to obtain a mortgage loan. They were forced to continue renting until they were able to improve their credit in another way, which can drag the process out and leave little hope for improvement. These days, however, lenders are becoming more lenient for those who wish to turn their lives (and their credit) around.
This is especially helpful for those who have been through a divorce or who have filed for bankruptcy. Both situations can put a credit score in the gutter, leaving it harder to get your life back on track. As a recently divorced individual, you can take out a subprime mortgage loan and begin to rebuild and re-establish your credit. The same is true for people who have been forced to file for bankruptcy.