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The one thing that sub-prime loans and FHA loans had in common allowing low credit scores has changed. However, the subprime mortgage is pretty much a thing of the past now. A FHA mortgage is now about the only subprime home loan you can get. If you have credit problems, there is no way you can get a conforming Fannie Mae/Freddie Mac loan. And, now with the federal government taking over these two government-sponsored entities (GSEs), there is much speculation that just about all lending will clamp down until the feds can sort out the fall out.
To add further to all of this according to the Wall Street Journal Blog, there are now more foreclosures on prime mortgages than on subprime ones. The latest figures, for July, put the number at 197,000, the highest for any month since they started keeping track in July 2007. Of those, 105,000 were prime mortgages, and 92,000 subprime. The June numbers also showed more prime foreclosures initiated. So the subprime meltdown has now spread into prime loans.
This writer's opinion: good riddance to bad rubbish. As time went on, more and more subprime loans were nothing but a disaster waiting for a place to happen. The interest rates were high and the loan fees were exorbitant. The lenders, in many cases, were bullying and abusive—this, I experienced myself. I held a subprime loan on my home previously and it was a terrible experience. Although, when Ameriquest took over my loan, conditions improved. But, it still was an adjustable rate mortgage (ARM) with high interest rates that were within months of becoming significantly higher.
I would have been better off with doing my home refinancing with FHA. FHA offers lower interest rates by two to five percentage points and FHA has reduced fees. Plus, there is no pre-payment penalty with FHA. But, I learned from all of this. I learned that shopping for a mortgage online provides more options for borrowers. There is always a FHA lender who can help you no matter what state you live in. You can find a FHA-approved lender by going to the Housing and Urban Development (HUD) website. Or, you can fill out a free loan quote on this page or call us toll-free.
Thus, the question isn't FHA loan versus subprime loan, but rather, if you currently have a subprime loan, what are you waiting for? A FHA loan will save you money. Most FHA lenders will approve you with a FICO credit score of as low as 580. All FHA is particularly interested in is what your 12-month payment history has been, particularly on your mortgage. If you haven't been late on your mortgage during this 12-month period, you have a credit score of at least 580 and you can show documented proof that you have the ability to pay the loan back, you may eligible for a FHA loan.
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