Subprime Home Loans

In the olden days, it was very difficult to obtain a loan on a car or home with good credit, and with poor credit it was downright impossible.  However, during the housing financial crisis in 2007 and 2008, people with poor credit and no income were able to obtain massive loans on homes. This is known as a Subprime home loan.  Also known as a Subprime mortgage, this happens when people have no obvious ways to repay the loan, and the lender often charges substantially higher interest rates which further compounds upon the fact that the borrower will eventually default on the loan.

The primary way in which a person is screened for their eligibility for a home loan is through their credit rating.  People that have Subprime home loans often have very poor credit ratings, which is often categorized as a credit rating below that of 640.  Below are some common actions that people take to obtain a poor credit rating and thus a Subprime home loan:

• Very young and therefore no debt experience.  In this case, the lender will simply assume the worst about the borrower, which often translates into higher interest rates.
• No possession of property that can be used as collateral in the case of a default on the loan.
• Excessive debt which amounts to more than the yearly income of the borrower.
• A long history of failure to repay debts in the past, including a history of late fees, missed payments, as well as late payments.

Subprime home loans were a major contributing factor to the financial crisis of 2008, and there are now more strict regulations regarding who can take out a home loan.  Subprime home loans often had very high interest rates attached to cover those that would ultimately default.