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Subprime mortgage loans are loans, which have traditionally not met Fannie Mae or Freddie Mac guidelines with respect to the risk of default by the borrower. In February of 2007, Freddie Mac announced that it would begin to buy adjustable rate subprime loans if the borrower qualified for the maximum loan rate, rather than just its low introductory or “teaser” rate.

Subprime mortgage loans are usually offered to individuals who do not qualify for traditional financing because they have low credit scores. Mortgage loan originators have very exacting standards of what is required to qualify for their prime mortgage loans. If you do not fit into their acceptable criteria your loan application is denied.

The whole world of subprime loans has resulted from those individuals who want to buy a house but can’t meet the qualifications exacted by traditional lenders. Subprime mortgage loans are extremely risky for the lender and many times for the borrower. To make up for this risk the lender will charge higher interest rates or use various credit enhancements, such as private mortgage insurance (PMI).

Subprime mortgage loans have become a very controversial subject recently. It has been reported that individuals who would have qualified for prime conventional loans have been preyed upon by unscrupulous lenders to sign contracts for subprime mortgage loans with terms they could not understand and with adjustable rates that were impossible for the borrower to repay. This practice of predatory lending has caused tremendous damage to people’s lives with the loss of their homes and is now resulting in criminal charges being filed against some lenders.

In the proper context, subprime mortgage loans serve a valuable service to those individuals who have poor credit histories by allowing them to get into a home. Then with time, the homeowner can establish a better credit history and refinance the loan to a more favorable interest rate. A homeowner needs to be fully aware of the costs involved in the loan before they commit themselves by signing a document. Often the subprime loan will be 2 or 3 points higher than conventional loans with a prime interest rate.

To find the best loan in the subprime market you need to work with a broker who deals with subprime loans. The Internet is your best tool to make comparison rate shopping a time effective activity. Find a subprime broker who specializes in these types of loans and is able to tap into a network of many loan originators who can find the best rate and terms available for your specific situation. You will be asked to fill out a credit application with accurate information so you can get a loan quote that reflects your present credit rating. Once you have found a loan that you and your broker agree is the best you can get, be ready to move on that loan immediately because interest rates can change from day to day.

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