There are so many types of loans to cover you as you buy a house, but there are some I’d think twice before applying for. There’s this cluster of risky mortgage loans that was very popular during the housing boom but now is just getting its comeuppance. I’d rather rent until I can afford less expensive loans that don’t have some hidden booby trap that springs out and forces me to foreclose. Unless you’re comfortable with the risk, I’d avoid these if I were you:
Subprime Loans:
These are non-traditional loans that are offered at a rate higher than prime for those borrowers who do not qualify for prime rate loans. Those with bad credit and who are at high risk of default, will be offered these loans if they decide to be homebuyers. Critics of subprime lending point out that due to its nature, this type of loan is taken out by people who usually are not able to fulfill their payments and obligations. And therein lies the risk because a subprime loan could be fine if you are able to make good on it. However, people fall into the trap of getting into a loan based on a low teaser rate and don’t plan on the consequences when it resets. As we have read in the media, predatory lending practices exist in this industry thereby often causing default, eventual foreclosure and even bankruptcy.
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