There’s plenty to cheer about in the world of mortgage. Ultralow rates are encouraging renters to make the transition into home ownership. Meanwhile, those who own a home are looking into available refinance options. Lenders have become more accommodating as well. Many have since loosened their guidelines to accommodate borrowers with bad credit on their record. No doc loans are also in the market again, opening up new financing opportunities for those who are self-employed. Yes folks, subprime lending is back. But what does it mean for the mortgage industry?
History repeating itself
There’s an underlying concern about subprime lending becoming popular again. After all, the less stringent approval guidelines of these loans helped sparked the financial crisis. Nonetheless, pundits have a more positive outlook. Interest rates are likely to stay low, at least until the year is out. And while lenders are welcoming subprime borrowers again, they’re now consciously taking steps to mitigate the risk of default.
A case for the self-employed
Self-employed individuals with undocumented incomes stand to benefit the most from the reappearance of subprime lending. Yields on traditional fixed-income investments are near rock bottom. As a result, some investors are willing to make these types of loans again. Speaking to TIME, Brian Hickey, the senior loan officer at Unity West Lending, arranges about or two or three of these a month. “They are designed to allow a person to buy or refi when they have strong cash flow but also write off a lot of business expenses,” he says.
Curb your enthusiasm
Are you a small business owner with a 680 credit score and enough cash for that 30-percent down payment? You’re an excellent candidate for a subprime loan. But these qualifications don’t guarantee an approval. A diverse and well-built portfolio helps but don’t rely entirely on it to pay off that mortgage. Some investment types are volatile. There’s no telling when they could plummet disastrously. At the end of the day, know what you can afford to pay for a mortgage every month, regardless of what you own.