Subprime Mortgage Essay

1290 Words 5 Pages
Peter wants to buy a house but needs some assistance with the extensive research that has to take place when purchasing a home. First and foremost the basic information needs to be addressed. Peter has seen through an ad that he can obtain a loan through several options; a subprime rate, ARM, extended loan, and many other options.
A subprime mortgage is a type of loan appropriate for individuals with poor credit scores usually below 600, who as a result of their deficient credit ratings wouldn’t be able to qualify for more common conventional mortgages. Subprime borrowers present a higher risk for lenders because of their credit scores and payment history. The subprime mortgage interest change and go far above the prime-lending rate. There are several different kinds of subprime mortgage structures available. An adjustable rate mortgage is very common.
• “ARM: Adjustable rate mortgage which usually charges a fixed interest rate and then converts to a floating rate based on a margin. The most known types of ARMs are 3/27 and 2/28.
• ARMs are somewhat misleading to subprime borrowers in that the borrowers initially pay a lower interest rate. When the mortgages reset to the higher variable rate mortgages payments increase” (S. Carther, 2007).
The Subprime mortgages were one of the
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The down payment can be considered one of the most important parts of the home buying process. Generally, the lenders ask for about 20 percent of the sale price to qualify for the best loan terms and interest rates. Hernandez, K.C states; “as of 2012, the national median price for a single-family home was $186,100, according to Business Week. If you have $100,000 to put down on a home, you are well positioned to get a significant loan amount” (K.C. Hernandez, para.1). Keep in mind that this was the national median price. Taking a look at California, the prices are significantly

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