Many borrowers who think they can only qualify for a Sub prime loan may very well qualify for FHA financing. FHA financing does not just look at a borrowers credit score. Instead it looks at the overall credit picture to determine eligibility. FHA home loans have rates that are very close to a conforming loan.

Another major difference between Prime mortgages and High Risk mortgages is the length of time of the prepayment penaly. With High Risk mortgages, most lenders know how desperate you are and are able to have a 1-3 year hard prepay penalty. (A hard prepay penalty is one where even if you sell the house in 1-3 years you still will have to pay a fee to close out the mortgage).

Most, if not all, Prime mortgages do not have a prepay penalty.

One of the biggest differences between qualifying for a Prime Loan vs. a High Risk Loan is your credit score. Borrowers with FICO Credit Scores of 720 FICO to 850 FICO are much more likely to be elgible for a Prime Loan vs. a High Risk Loan.

Prime and sub prime lenders differ in the types of loans they offer. Prime lenders offer loans to those with credit scores of a certain minimum. Sub prime lenders provide loans to everyone else. Sometimes though, financing companies offer both types of financing.

Sub prime loans have higher rates and fees since the risk is higher for lenders. Reasonable lenders will only charge a couple of points higher for most types of loans.

High Risk mortgages will have higher margins than Prime mortgages. Most High Risk mortgages are ARM (Adjustable Rate Mortgage) based programs. These can start to fluctuate in a particular period of time. These ARM loans are made up of different components: the index, the margin, a floor and a ceiling.

The adjusting part of the loan is based on the index. This can be the LIBOR, the 12 month Treasury Average, the 6 month Treasury Average, the COFI, the COSI, or other numerous indices. The margin is how the bank makes its money. The floor is what the loan can never fall below. For High Risk mortgages, the floor is mostly the start rate of the loan. For Prime mortgage, the floor could drop all the way to the margin. Lastly, there is the ceiling. This is the highest to which the loan can go.

Are Subprime Mortgages Bad Loans? - There are news stories reporting on how subprime home loans put families in financial jeopardy and are the cause for most foreclosures. Are sub prime mortgages such bad loan programs that one should avoid at all costs?

Subprime Mortgages are designed to help home buyers who do not qualify for conforming loan products. Sub-prime home loans help many people with poor credit history purchase homes, many requiring little to no down payments.

Sub-prime mortgage is a wonderful tool in helping to put people with blemished credit in their dream homes which they otherwise would not be able to acquire, because neighborhood retail banks would likely turn their loan applications down, due to their less than perfect credit history.

In addition to making them homeowners, having a subprime mortgage can also help rebuild their credit profiles, provided they remit mortgage payments punctually, as mortgage payment history weighs heavily on credit scores.

The term "subprime mortgage" has developed a negative connotation primarily due to heavy media coverage of the Wall Street companies who have invested heavily in the mortgage sector and the money they are losing for being overzealous in their investments. Don't let corporate greed and the media frenzy put a label on you.

If your credit is less than perfect, but you can afford to purchase a home, the forgiving and flexible guidelines currently available in the mortgage industry offer you an opportunity to begin building equity in your own home instead of wasting your heard earned money on rent. But don't let that opportunity become a liability by biting off more than you can chew. Don't bend to the pressure of buying as much house as you can afford. Think conservatively about how much you can comfortably afford even if times get tough, plan to make a downpayment, and save as much money as possible prior to purchasing the home. Improving your credit prior to purchasing a home can also help you escape the "subprime" label entirely, and may be the best investment you can make in your financial future.

Subprime Mortgage has a negative connotation because "sub" means "under" while "prime" means "greatest." However, subprime is a very broad term used regularly within the mortgage industry to categorize loan risk. Mortgage loans are typically classified as A, ALT-A, and SUBPRIME. "A" loans carry the least amount of risk while "SUBPRIME" carries the highest amount of risk.

Subprime mortgages are where a mortgage broker really shines. Your mortgage broker will have access to many more programs than your local bank. In most cases, a bank simply will not be able to approve a mortgage application for a buyer who has various special needs, including bad credit, no assets, no rent history, spotty job history. A mortgage broker, however, helps these types of customers find attractive mortgage loans every day.

Sub prime loans gave many people the opportunity for home ownership, and many people have financially prospered from having a sub prime loan. The loans themselves did not cause the problems we are seeing today. The real problems lie in the real estate market themselves and depreciating home values.

Subprime mortgages can be looked at as a "band aid" loan. If your credit isn't in the best shape because you are having trouble swinging your monthly payments on time, consider consolidating some of your debt to lower your monthly payments. Your Mortgage Consultant can show you the best band aid loan for you so you can make all of your payments on time and refinance into a conforming loan once your credit is repaired.

Subprime loans, if used properly, are an excellent vehicle for a consumer to improve their financial position immediately. Many former subprime borrowers have improved their credit rating and have since moved into the "prime borrower" pool. This is often accomplished by using subprime financing as a means to solve ones immediate financial needs.