Types of Real Estate Loans

Subprime & Non- Conforming Loans

Subprime, B-C Paper, Non- Conforming, and Alt-A Programs are all loans that are for people who have situations that fall outside of the Fannie Mae/ Freddie-Mac guidelines.  The property could have a non-conforming use or Zoning.  There may be some credit imperfections.  Maybe the income ratios fall outside the lines, or the loan is just too big for most lenders.  Whatever the reason, we at Pegasus Financial consider it our mission to find you the best financing package for your particular situation.

The so-called "SUBPRIME Meltdown" of 2007 was the result of the introduction and proliferation of Subprime mortgages for borrowers with little down payment and documentation, in addition to less than perfect credit.   It is my opinion that the crises could have been somewhat avoided had individual Loan originators and borrowers paid more attention to whether or not the loan was actually right for the borrower.  It's true that the programs made entering the housing market possible for many who would have otherwise not been able to do so, but many who entered the market were not prepared to make the payments required.  These are the people who w=started the foreclosure boom, and unfortunately, took a lot of people with them.  The lending industry then, out of necessity, started a "Back to Basics" movement, which overshot the mark by eliminating programs that were viable and good for the overall market, in addition to the ones that weren't.  This tends to support the roller-coaster of home prices and financing options that we have been on.  Stay tuned. The Real Estate market WILL REBOUND, and you can look forward to Million dollar homes being the norm in many parts of the country.

If you are curious about credit ramifications, see our Credit Info page.  This will give some insight into how your credit score might affect your ability to obtain financing. 

Whatever your scenario, if you are reading this page and think you might need some help, please contact us.  You may be surprised at what we can do, and if we can't find you a loan that works for you right now, we can probably tell you what you need to do to improve your situation so that you can purchase or refinance.  We don't launder your credit, but we will tell you how you can improve it, and how you can start to correct errors, and we will do it without charge.  We just ask that you remember us when you're ready, and tell your friends and family about us.

Subprime Loan Types

Subprime loans are  usually offered in 30 year fixed, 15 year fixed, Adjustable, and 2/28 or 2/27 versions.  *A 2/28 is simply a loan that has a fixed rate for the first two years, and then is adjustable after that. *This program has been looked upon with disfavor in down markets, and likely to disappear for a while.

Recently new options have been added. There are now 5 year fixed options, as well as 40 and 50 year amortization schedules to help keep payments down.

There is usually a prepayment penalty for the first two years, but prepayment penalties vary significantly.  These are looked upon as a Band- Aid by many people, and are frequently refinanced after the prepayment penalty has lapsed.  It is important to be willing and able to live with the loan for the period of the penalty, because the cost of paying off such a loan can be significant.  You also should be aware of the type of Prepayment penalty that is in place.  A hard prepayment penalty will apply anytime the loan is paid off during the period in which it applies. A soft prepayment penalty does not apply if the property is sold, as opposed to refinanced. 

Give us a call if you have any questions about these types of loans.


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