Subprime mortgages still available

Everything has changed in the mortgage market.  Everything.  But it is not true that so-called sub-prime mortgages are no longer available in any form.

While you can no longer get a no-down-payment loan or a “no doc” loan (often called “liar loans”); or any loan without adequate income, you can get a mortgage with an imperfect credit rating and as little as 3.5% down.   Just find a lender who works with the Federal Housing Administration (FHA) insurance program. 

The FHA insures mortgages up to $625,000 in the most expensive markets.   It requires a minimum down payment of about 3.5%, and your total mortgage payments, including taxes and insurance, cannot exceed 31% of your income.  You will have to provide proof of your income and assets.  For details go to the FHA’s Insured Mortgage Programs page and look up 203(b) Mortgage Insurance.
 
If you do get an FHA mortgage your monthly payment will include an extra charge to cover the cost of the insurance, just as you do with so-called private mortgage insurance (PMI).    PMI is still available, but restrictions are much greater.  For example, down payments are typically 10% or more in areas where home prices are falling, and there is usually a minimum required credit score.  One PMI requires a score of at least a 680 (out of 850) in areas with declining home prices.

As the only game in town, the FHA wrote more than a quarter of all mortgages issued in the third quarter of 2008.  To find an FHA approved lender in your area go to the FHA’s Lender Finder.

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