Subprime Mortgages

It gets worse with a score of 620 or lower. You are stuck in the subprime mortgage market. That means your scores are not high enough to qualify for a mortgage that can be purchased by Fannie Mae or Freddie Mac, the government-sponsored corporations that buy mortgages and resell them on Wall Street. Other investors will buy those loans but they will demand higher interest rates  than Fannie and Freddie. That low credit score would jack your rate up to 9.29 percent and your monthly payment to $1,651. That’s a whopping $483 more each month than a borrower with the best credit scores would expect to pay for the same mortgage.

Lenders actually like making high-rate subprime loans. They are profitable. But as a borrower you need to beware. When loans are not being sold to Fannie Mae and Freddie Mac then they don’t have to include the consumer productions like reasonable interest rate caps that Fannie and Freddie demand. Subprime loans are the wild west of mortgage lending and borrowers with poor credit are the most susceptible to predatory lenders who charge outrageous interest rates and demand stiff prepayment penalties of borrowers’ fortunes improve and they try to refinance into a better loan. The lowest score that can qualify for a mortgage is about 500-520. If your scores are lower than that then spend the next year overhauling the family budget, getting rid of debts – attack those with the highest interest rates first and making payments on time.