What is Sub-Prime Lending?

Buying a home has gotten more difficult in recent years. Obtaining financing that you can understand and afford is an even greater undertaking.

While sub-prime lending has gotten a lot of media attention recently, I’m reminded that there is typically good and bad in all things. Advocates of sub-prime lending say that lenders are helping individuals by making it easier to qualify for a loan. Opponents of sub-prime lending remind you that easy is not always a good thing.

Sub-prime mortgages are often given to those with low credit ratings who would otherwise be unable to qualify for a traditional loan. Poor credit ratings are associated with higher risks, which mean higher interest rates. Higher rates result in higher payments, costing thousands more over the life of the loan and making it even more difficult to meet monthly obligations. And if you are unable to repay the loan, your home could be repossessed and your credit score will become even worse.

Although you have been long looking forward to the day when you could buy your dream home, you may be better served to work toward rebuilding your credit so you can qualify for a traditional loan. A good credit rating is your greatest financial asset.

Talk with several lending institutions and get their advice. In many cases, you can re-establish your credit in as little as one year by making payments regularly and on time toward your other debts. Using a credit card and paying it off in full at the end of each billing cycle is one of the best ways to accomplish this. Just be sure the credit card company reports to the major credit reporting bureaus.

While buying a home is not always easy, it remains one of the most satisfying accomplishments you will ever achieve. And there’s no greater reward than moving your family into that “perfect” home.