Definition of Subprime Mortgage:

Orange County Subprime Mortgages:

A type of mortgage that is normally made to borrowers with lower credit ratings (less than 620 Fannie Mae, Freddie Mac – 580 for FHA). As a result of the borrower's lowered credit rating, a conventional mortgage is not offered because the lender views the borrower as having a larger-than-average risk of defaulting on the loan. Lending institutions often charge interest on subprime mortgages at a rate that is higher than a conventional mortgage in order to compensate themselves for carrying more risk.

Borrowers with credit ratings below 580 often will be stuck with subprime mortgages and the higher interest rates that go with those mortgages. Making late bill payments or having collection accounts could very well land borrowers in a situation where they can only qualify for a subprime mortgage. Therefore, it is sometimes useful for people with low credit scores to wait for a period of time and build up their scores before applying for mortgages to ensure they are eligible for a conventional mortgage.

If you're taking out a mortgage loan to purchase a principal residence or to refinance a principal residence, you'll need a minimum FICO score of at least 620 to qualify for a Fannie Mae or Freddie Mac-guaranteed home loan, but your loan-to-value ratio must be less than 75 percent. If your loan-to-value ratio is greater than 75 percent, you'll need a minimum FICO score of at least 680.

Borrowers with credit score as low as 580 could qualify for an FHA mortgage although they may face challenges. Many participating FHA lenders require a FICO score of at least 620 in order to qualify for an FHA home loan. Just because the FHA minimum is 580 does not mean a particular bank is willing to issue credit to those with that score--the FHA loan program is a voluntary one, lenders are not required to participate, and the FHA cannot force the bank to lower its FICO requirements.

 

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