What Is a Subprime Borrower?

By Kathy Johnson
California Mortgage Rate Columnist

If you're trying to qualify for a loan, you may have come across the term "subprime borrower."

Defining "Subprime Borrower"

What does this mean? In general terms, a subprime borrower is one with credit problems, as opposed to a "prime" borrower, with good credit scores and little debt. While individual lenders have their own definitions, according to bankrate.com, generally subprime borrowers may have: a FICO score of 660 or lower; two or more 30-day delinquent payments in the past 12 months, or one 60-day delinquency in the past 24 months; any bankruptcy in the last 60 months; qualifying debt-to-income ratios of 50 percent or higher; and/or limited ability to cover monthly living expenses.

Options for Subprime Borrowers

If you've been labeled a subprime borrower, it doesn't mean that you won't be able to get a home loan. You may be eligible for a subprime mortgage, or so-called bad credit mortgage. You should, however, carefully shop around for your loan, and choose your subprime lender wisely.

In addition to interest rates, carefully examine loan terms. For example, a bad credit mortgage with a prepayment penalty (a fee charged by a lender when a mortgage is paid off before the due date) can make it harder for you to refinance to a more affordable loan later.

In the past, if you didn't have good credit you might not have been able to get a loan at all. While being labeled subprime isn't ideal, it shouldn't spell the death of your dreams of home ownership.

Sources:
Bankrate.com

About the Author
Kathy A. Johnson is a freelance writer and editor based in Florida. She has worked as a writer and editor for several publications, writing articles on health and fitness, gardening, teen issues and other topics. She is currently the features editor of Forum, a bimonthly publication of the national mothers group, Mothers & More.

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