Subprime lending – Good?  Bad?  Ugly?  No, yes and yes.  But what’s it all about?  If you’ve followed the news in any way, you’ve heard about companies like New Century and ResMAE going out of business, but have you followed exactly WHY they weren’t able to make it?

Do a Google search for "subprime lenders going bankrupt" and you’ll see phrases like "spiraling south", "Homesick blues" and "out of control".  In the late 90’s and into the early 2000’s, real estate became a hot commodity and lenders started popping up everywhere.  That’s not necessarily a bad thing for a free market economy, but as the product – real estate – gained more and more momentum then lenders started opening up their restrictions and started loaning money left and right.  Sally got money, Jimmy got money, and some lenders started loaning money at very unfavorable terms and without disclosing things like major prepayment penalties.  Some would argue that subprime lending has some positives, and I could agree with that, but if you’re a buyer with less than stellar credit let’s focus on how we can overcome THAT problem, rather than lead you to the edge of an even slicker slope.

1.  Save.  And when you’re done, save some more.  I’ve heard it said that if you’re renting for $1000 a month and want to purchase a home, then find out how much owning a home will cost you a month, substract $1000 and start saving the difference.  Don’t know how much a home will cost?  Start by asking a REALTOR or a Mortgage Genie (here, here, here or here).  Buying a home is something that we all have to work towards, and saving will help provide you with a down payment on your house.

2.  Get with the credit program. Most of us have slipped up and missed a payment – or three – at some time, so first don’t let bad credit be a major stumbling block.  If you’re FICO score is less than 660, let’s get started talking how to clean that up and get you in touch with someone who can help you make a plan that works for you. 

Buying a home is serious, but the benefits are numerous.  Take advantage of the loans that are out there but make sure to have a qualified professional review what you’re being told – it can’t hurt to have a second look, and it just might save your butt.