Subprime loans are not just for people with less than perfect credit. While many subprime loans are used for people with not such good credit, many are also used for creative financing, unique situations, and for loans that
don't meet traditional conforming guidelines (conforming loans are generally for people with good credit).Sometimes the subprime market will offer up better interest rates for a borrowers unique situation, than could be achieved applying for a mortgage with a prime (AAA) lender, Even if the borrower is not considered to be subprime.
There is a wide range when it comes to the interest rates of sub prime lenders. It is your mortgage brokers job to shop your loan to multiple sub prime lenders and obtain the best deal for you. Most sub prime loans are written as 2 or 3 year ARMS.
Subprime loans are also referred to as nonconforming loans, because they do not conform to standards set forth by Fannie Mae or Freddie Mac, the two largest purchasers of mortgage backed securities.
There are many different sub-prime programs available. There is much more flexibility on documentation required. A good example is a VOR (Verification of Rent), may not be required using certain subprime lenders. This makes it easy to finance someone that can't verify their rental history. There are many more examples of subprime programs!
