What Is Sub Prime?

Thomas Martin Staff asked 5 years ago

Sub Prime is the term used to describe higher risk, non-conforming lending practices that are not utilized within the traditional Freddie/Fannie conventional lending market. The underwriting of Sub Prime borrowers can include combinations of traditionally unacceptable borrower traits such as; Loan Amounts, Housing Ratios, Debt Ratios, Bad Credit Issues, Employment History, Cash Reserves, Credit Scores, Bankruptcies, Foreclosures, and Legal Status. A non-traditional borrower can have any combination of issues which would prevent them from qualifying today for a conventional low interest rate mortgage. Sub Prime loans involve higher risks to both the borrower and the investor. As a result, these loans charge much higher than traditional Interest rates typically tied to an adjustable interest rate. In the secondary mortgage investment market, these were an attractive buy due to the return on investment. The loan products, while still available in a more limited capacity today, are not the ideal vehicle to owning or refinancing a home.

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