Subprime Real Estate Loans
A subprime real estate loan or mortgage loan is a loan that has a higher interest rate than a prime loan or A paper loan. Subprime loans are usually adjustable rate loans as opposed to fixed rate loans, thus reducing the market or interest rate risk to the lender and passing it on to the borrower.
Sub prime loans are offered to borrowers who have impaired credit histories and FICO Scores generally at 600 or below. Subprime borrowers may have:
- Limited or no credit experience
- Excessive debt
- A history of late payments
- Written-off debts
- A prior bankruptcy
- Unpaid judgments
- Tax liens
While obtaining a subprime loan will cost the borrower a premium, it also offers the borrower an opportunity to rebuild his or her credit and buy a home sooner rather than later.
Private Money - Private Money Lenders
Private money refers to loans made to individuals, companies, and other entities by non-institutional individuals or private lenders. These loans normally carry higher interest rates than institutional loans made by banks, credit unions, and insurance companies because these institutional lenders generally have more stringent underwriting requirements. Private money lenders generally rely more on the asset value of collateral and less on the credit rating and/or the cash flow or income of the borrower.