Texas Hard Money Lender: Texas Subprime Mortgage for Regular Borrowers

A sub prime mortgage Texas is typically designed for borrowers who have bad credit to purchase Texas real estate.However, there are certain situations where prime borrowers can benefit from asub prime loan. Knowing the types of loans available can help you make aninformed mortgage decision.

A subprime mortgage is a loan given to a borrower who is considered to be a higher risk due to a poor credit score. Typically a subprime borrower has a credit score of less than 640, but this does vary. Since the lender is assuming a higher risk, the interest rate is also generally higher. Critics of subprime lending argue that it charges unfair interest rates and further burdens individuals with low incomes and high amounts of debt. However, if used correctly a sub prime mortgage, Texas can benefit all Texas home buyers, even those with good credit. There are several types of subprime mortgages available and each type has different advantages and risks.

The most common type of Texas subprime mortgage offered in the state is an adjustable rate mortgage or ARM. An ARM starts out with a low interest rate that is locked in for a specified period of time, usually between 1 and 7 years. At the end of the term, the rate adjusts to a higher rate. ARMs earned a bad reputation in the mid-2000s for contributing to the foreclosure crisis. However, it is important to note that many of these ARMs were given to buyers with bad credit who overextended themselves by buying homes that were more expensive than they could afford. When the rate reset they could no long make their monthly payments.

Although the rate of ARMs does adjust with time, you can always refinance to either a lower fixed rate mortgage or even another adjustable rate mortgage. Taking advantage of the lower interest rates of an ARM could save you thousands on mortgage interest, giving you more money to pay off the balance of your loan. As a result, you can pay off your home sooner and pay significantly less interest.

Using an ARM to your Advantage

For many people, a traditional mortgage actually costs them money and simply does not make sense. Most people do not live in a home for 30 years, in fact the average time frame is 8 to 10 years. Even if they stay for longer, most people end up refinancing their mortgage at least once and some people refinance every 2 to 3 years. This ends up costing a significant amount in interest because in traditional home loans, you pay the majority of you interest during the first half of the loan term. Also, traditional 30 year loans charge a higher interest rate as a type of insurance for the lender. The lender assumes you will take 30 years to pay off the debt. 30 years is a long time and there is a chance that something could happen that would cause you to default. The lender charges you a higher interest rate to earn more money to keep as a type of insurance against default. The terms on an adjustable rate are only about 1 to 7 years so they can offer a lower interest rate since the term is shorter and less risky for the lender. An adjustable rate mortgage has a much lower interest rate than a traditional mortgage which can save you thousands of dollars over the loan term. Using this type of sub prime mortgage Arizona can save you significant amounts of money and should be considered by both prime and sub prime borrowers alike. Here are a few situations when an adjustable rate mortgage actually makes more sense than a traditional mortgage:

1. You have bad credit, but you are working on it. An ARM is a fantastic option to help rebuild your credit score. If you know you will be able to qualify to refinance before the rate adjusts, it is a good way to get into a home and start rebuilding your credit score.

2. You plan to sell your home prior to the rate raise. If you only plan on living in your home for a short period of time, an adjustable rate can save you money. If you sell before the rate raises you will never have to pay the higher interest rate.

3. You plan to fix up the home and sell it for a profit. If you are not planning a long term investment, an ARM can save you money while you are renovating.

4. You expect your income to increase. If the loan resets, you will be able to pay the higher interest payments because you will be earning more money.

5. You expect a windfall. You know you will be able to pay the home off early due to an inheritance. Then the ARM can save you interest while you wait to pay off the home.

There are certain risks for adjustable rate mortgages but these can be minimized by smart investing.

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The most important piece of advice regarding ARMs, is to never overextend yourself. An ARM often allows buyers to buy a home that is higher than they could qualify for with a traditional mortgage because the lender looks at the monthly payments. Once the rate resets these can increase and the buyer can actually be priced out of the home they already own. This can lead to default and foreclosure. Talk with a mortgage broker to get the most up to date information about Texas sub prime mortgage programs to see what makes the most financial sense for you and your family.