Just because you need a subprime loan doesn’t mean you should be taken advantage of. You still deserve a good subprime lender. Luckily, there are many out there. You just have to learn which ones are right for you.
Whenever you take out a loan, you shouldn’t assume anything. There is always fine print. It’s there for you to read it. This way you know exactly what the terms are and what to expect.
This gives you time to ask questions too. If there is something you don’t understand, question it. You should always do this before you sign on the dotted line. If you don’t like the answer you get from the mortgage lender, ask your attorney. You always have the option to talk to a housing counselor as well.
Along with reading the fine print, you should make sure all details are covered. If there are blank spaces on a document, don’t sign it. This leaves the document open for false or incorrect information. Only sign for what you know and understand.
Ask the Subprime Lender About Prepayment Penalties
Prepayment penalties aren’t as common as they used to be, but they still exist. This goes along with reading the fine print. It’s always best to ask a subprime lender about these penalties. Some charge them and some don’t. If there is one, you need to know the following:
- What are the terms of the penalty? How long does it last?
- What will it cost if you decide to pay the loan off before the penalty expires?
- Is there a way out of the penalty?
Prepayment penalties aren’t always a bad thing. They usually can’t last longer than 3 years. If you plan to stay in the home that long, it may not affect you. But, you must make sure you are comfortable with the current monthly payment. Refinancing will be a very expensive process if you have to pay the penalty. Give it careful thought before accepting one.
A good lender will give you two options; one quote with the prepayment penalty and one quote without it. Tis way you can make the decision that works best for you.
Evaluate the Upfront Fees From a Subprime Lender
Every lender charges fees. After all, they are in business to make money. This doesn’t mean they have to be excessive. Even though you need a subprime loan, it doesn’t mean you have to overpay.
In order to choose the right subprime lender, compare the Loan Estimates they provide. Pay close attention to the fees with names such as:
- Origination fee
- Discount points
- Processing fee
- Document fee
- Application fee
These are just a few ways lenders spin the names of upfront fees. They aren’t necessary in order to secure a loan. As you compare the Loan Estimates, see what each lender charges. As you look at the individual fees, you can also compare the APR. This gives you an idea of the cost of the loan over its entirety. Only then can you make the right decision for your loan.
Compare Interest Rates
Of course, everyone wants to know what the interest rate is on a loan. You should consider this when choosing a lender, but it shouldn’t be the deciding factor. The fees and terms often play a more important role. A difference of 0.5 – 1% may be less than $100 per month. The fees, on the other hand, can get into the thousands.
As you get various offers, you can negotiate with lenders too. If you have other offers that are better, it gives you more bargaining power. Of course, it helps if you have compensating factors that make your loan worth having. For example, if you will be putting down a large down payment, lenders will want your loan. You are more likely to make your payments. This may make some lenders offer you a slightly lower interest rate.
Watch out for Pressure Tactics
Of course, with every loan program comes some negative issues. Pressure tactics are one that seems to follow subprime lenders. The right lender should allow you to state the truth on your application. They shouldn’t encourage you to inflate your income or your assets. This way you only qualify for the loan that you can afford.
The right lender will also provide you with all of the documents you need completely filled out. They won’t ask you to sign documents that they will fill in later. You want a lender that has your best interests at heart even though they are in it to make money too.
Ask for Reviews of Subprime Lenders
The best way to find a good lender is to ask for reviews. If you know others that took out a subprime loan, ask their opinions. See which lender they used and what they thought of them. Ask specific questions so you know what to expect. Most people are willing to talk about their experience, whether good or bad.
If you don’t know anyone personally, hop online. People often share their experiences on easy to access websites. Oftentimes you’ll see more negative than positive, which can help you make a decision. While you want to know the good, it helps to know the worst that can happen as well.
Putting everything together, you can find the best subprime lender for you. No two borrowers will have the same preference. Weigh the pros and cons of each lender and choose the one that suits you the most.