Subprime Lending In The USA Booming Again – Wait For The Bust!

The latest applicant would like to be pre-approved for a mortgage loan so that they can go ahead and make a firm offer on a home. He works as a casino dealer and his wife works for the city. Their credit rating is fair, mainly because his income is not that stable. He essentially relies on tips as a casino dealer while his wife works for the city and receives a regular pay check. They have been offered a subprime mortgage and are wondering if this is the best approach for them.

Often many consumers who do not have the best credit rating will be offered subprime loans and mortgages and this is the main reason that subprime lending in the USA is booming again. Many people are wondering if this phenomenon will lead to another bust in the future.

Subprime lending essentially means that mortgages and loans are lent to people with credit ratings that are not excellent with interest rates that are typically higher than the regular prime rates that people with excellent credit ratings can borrow money for. Consumers pay more interest as a result over the life of the loan or mortgage. In addition, the interest rate is usually not fixed which means that it can increase some time in the future if the prime rate increases. Anyone who was just able to meet the monthly payments could find themselves dealing with higher payments and unable to pay their mortgage payments. This can lead to bankruptcy and foreclosure on homes.

Consumers should consider any loan or mortgage carefully and look for the lowest interest rate possible and lock it in for the longest term possible. The chart at the bottom of this post illustrates the difference in total interest paid and the monthly payments for three different interest rates representing a typical prime mortgage rate and several subprime interest rates. The difference in monthly payments and total interest paid is substantial!

With subprime lending in the USA booming again, will it lead to a bust? We do not know, but consumers can protect themselves by locking in interest rates at the lowest possible rate.

DEFAULT LOAN APPLICATION FOR BORROWER’S INFORMATION

Home/Mortgage Loan Amount :: $150.000

Home Loan Application and Processing Speed (when do you need the funds)::I would like to be pre-approved for a mortgage and was wondering about subprime mortgages and if I would qualify for one.

Do you currently have a mortgage? :: no, I currently rent

Bank Name and Branch :: Bank of America, 4th St

What City/Town, State and County do you live in? :: Las Vegas, Nevada

Zip ::89101

What is your employment field? :: Casino

Employment Position ::I work as a dealer in one of the local casinos

When are you paid? (monthly/weekly/biweekly):: biweekly, plus daily tips

Your credit rating to be – excellent, fair, or bad? :: fair I guess

How did you find us? :: looking for a mortgage online

How are you paid? (direct deposit/paper check)::direct deposit plus cash from tips

Gross Amount Per Paycheck :: $1923 including tips

Do you agree to have this information published online, without your PRIVATE information of course? :: sure, I guess so

Extra information here please (some detail):: I am a dealer at a local casino and my wife and I would like to purchase a home before the prices go up too much. Las Vegas really suffered in terms of housing prices since 2008, but now they seem to be on the rebound and we would like to purchase a home before they go up much more. My credit rating is fair as far as I am aware and we are applying at several locations to try and find the best rate in terms of interest that is available.

Regarding our income, my income varies a great deal depending on how busy the casino and the hotel is. If there are a lot of people in town, we do very well, however in the slower months it can be a bit difficult from a cash flow perspective. I make most of my money in tips so we really depend on the casino to bring in a lot of customers.

Fortunately, my wife works outside of the casino business in a much more stable occupation. She is a manager in a department for the city. Although no job is guaranteed these days, working for the city is about the best you can get in terms of security. I did not include her income on the application. Can you let me know if I should resubmit this application in order to qualify for a better mortgage?

Note to Lender :: We do not have any other loans at this time. We rent an apartment and we have two cars, with both of them paid for. We keep our credit cards up to date and do not carry a balance. This is the best way to minimize the amount of interest that we have to pay on any purchases that we make.

Several other lenders have suggested a subprime mortgage to us and we are considering one quite seriously. We are still wondering if this is the best deal for us and would appreciate your suggestions and / or a better proposal. We really want to minimize the amount of interest we pay. We are looking to be pre-approved so that we can make an offer on a home in the near future.