In America, owning a home has become a national obsession - nearly 70 percent of adults own their homes rather than rent, making it the norm rather than the exception. As house prices moved steadily upward since the year 2000, more and more consumers piled on to the bus, choosing to make the trip regardless of the cost. Unfortunately, that decision is coming back to haunt many of them.
Financial institutions lending to those with bad credit, often referred to as sub-prime, do so because the profits are extremely lucrative. Interest rates are several percent higher than conventional loans, providing lenders with a margin of safety to protect against higher default rates, common among those with poor credit.
If you have a FICO (credit rating) score lower than 660, two or more 30-day delinquent payments in the last 12 months, one 60-day delinquent payment in the past 24 months, or have gone bankrupt in the past five years, you could be a bad credit risk. However, even if you meet all of the above criteria, your lending institution may not consider you a sub-prime borrower. This is up to the individual policies of the bank's loan department, and every institution is different.
It's understandable to want to own your own home, but at what cost? If you took out an adjustable-rate mortgage after 2005 and are a sub-prime borrower, you are looking at converting your mortgage at rates upward of 10 ten percent. That's an incredible strain on your financial situation, made worse because you probably bought the best house you possibly could. It's no wonder experts predict that over one million people will lose their homes due to foreclosure - that's not exactly the American dream.
Something to keep in mind as you search for a mortgage: 15 percent of people holding sub-prime loans actually qualify for conventional ones. Before signing on the dotted line, check your credit score closely, ensure everything is accurate and then demand from any prospective lenders that you receive prime - not sub-prime - rates of interest. The difference could very well save you from losing your home.