California Subprime Mortgage Lenders
California Hard Money Direct offers subprime mortgages with quick approval, competitive rates, fast closing times, and reliable service. We are considered to be one of the top direct hard money lenders in California.
What is a Subprime Mortgage?
These are relatively new programs. Therefore, you will find them called by any of the following names:
- Non-prime mortgage loans
- Non-qualified mortgages
- Non QM
The word non-comes into play since they do not meet the requirements of a prime mortgage loan.
Technically, any mortgage that is issued to a borrower that does not meet these requirements is a non-prime loan. Whether someone says “non-prime mortgage”, “non-qualified mortgage”, or “subprime mortgage”, they are usually talking about the same thing.
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Subprime Rates
Keep in mind, the subprime mortgage does come with a higher interest rate. After all, it is perceived as a riskier loan. The rates vary based on several factors. Not only credit score but also how far in the past the negative issues may have occurred. A loan modification, short sale, foreclosure a month ago would be looked at very differently than three years ago. Predominantly, the interest rate associated with a subprime mortgage is dependent on four factors: The size of the down payment, credit score, the number of late payment delinquencies on a borrower’s credit report, and the types of delinquencies found on the report.
The concept is to provide mortgage loans to borrowers “with slightly flawed credit”. Several improvements have been made to the stated loans of the past. They ended up being very dangerous to the borrowers and lenders because they literally offered a no questions asked loan. Enough changes have been made so that subprime loans today will continue to be viable. The underwriting is designed to protect both the lender and the borrower. Just because somebody does not have excellent credit does not mean they are not worthy of the opportunity to own real estate. Much has been learned from the past. Almost a decade has passed, and mortgage lenders have learned their lessons. The public demanded a happy medium and it would appear Subprime loans are the perfect solution. And enough checks and balances have been implemented in order to help keep history from repeating itself.
Subprime Loans for Investment Properties
Investment properties are the easiest and quickest to get funded. The two biggest reasons are:
- No income verification is required
- Three-day rescission periods are not required
Subprime Owner-Occupied Loans
California Hard Money Direct is one of a handful of companies offering Subprime loans for owner-occupied properties. Each lender offering them is bound by Dodd Frank regulations. These require mandatory verification of the borrower’s income. Income must be verified to prove the borrower can truly afford the loan. It is not merely a matter of income being high enough. The borrower must show their debt versus their income ratio is within the guidelines deemed allowable. Typically, somewhere between 43% and 50%. These are mandatory federal requirements and all lenders must abide by them. Depending on how the borrower’s income is derived will determine the verification needed. If the person is self-employed, they may even be able to show bank statements. Otherwise, we can accomplish verification by showing tax returns, pay stubs or W-2s. The income verification and mandatory three-day rescission period have a direct correlation on loan closing times. Without question, owner-occupied subprime loans take longer than investment property subprime loans.
There are no prepayment penalties for subprime mortgages on owner-occupied properties, though they may be six-month prepayment penalties for subprime mortgages on investment properties.
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Because each loan is manually underwritten, not all loans fit into the same box. Unlike working with a conventional lender, subprime lenders have a lot more flexibility. It is a very customized process because every borrower has specific risks that need to be assessed. Our in-house underwriting offers the flexibility to take into consideration a more open-minded common-sense approach. Sometimes it is just a matter of making one adjustment in order to make the transaction work. It could be as simple as asking for a larger down payment to offset debt to income ratios. Subprime loans allow for more out-of-the-box thinking. Most loan underwriters would much rather see a client with a low FICO score and a large down payment compared to an applicant with a high credit score and smaller down payment.
A subprime mortgage is a loan normally issued to borrowers with FICO scores lower than traditional lenders find acceptable. Conventional lenders assume if the credit score is low the borrower is automatically too high of a risk for them to consider.
The lower credit scores in addition to other issues prohibit these borrowers from qualifying for prime mortgages based on Fannie Mae and Freddie Mac underwriting guidelines.
Subprime/non-prime mortgages are predominantly designed for people with any number of credit and/or employment issues. The credit issues could range from having a low credit score for a number of different reasons. Also, a lot of these programs are helpful for self-employed individuals. Self-employed people tend to have a lot of write-offs. Tax returns may not show the entire picture. Subprime programs will allow self-employed people to prove their income through a bank statement program. For this reason, people also refer to these bank statement programs as the new stated income loans.
Subprime mortgages are very popular. Many individuals have low scores because of the last downturn in the real estate market which led to foreclosures, short sales and even bankruptcies. A lot of people have been unable to get their scores to the level needed to qualify for a bank loan. In addition, millennials have higher student debt than any prior generation. A subprime mortgage allows considerable flexibility with regard to credit scores, enabling many people qualify for a loan that otherwise would not stand a chance.
Subprime mortgages are an alternative for borrowers to turn to when their scores fall below the 650 range. At this range, most traditional lenders can no longer help. Subprime loans are a perfect alternative.
California Subprime Mortgage Lenders
At California Hard Money Direct, we can help you invest in property with a subprime or non-prime mortgage almost anywhere in California.
Refinancing Subprime Mortgages
Keep in mind, interest rates are higher. As such, refinancing into a conventional loan as soon as possible should be the ultimate goal. Doing so will reduce the monthly mortgage payment significantly.
Rather than staying out of the real estate market because of a bank turned down, a subprime mortgage can be utilized as a stepping stone. It gives the borrower an opportunity to capitalize on the real estate market while they remedy whatever issues prohibited them from getting a bank loan in the first place. Once they have done so, Refinancing the subprime mortgage into a conventional loan would be the next step. During the time you have the subprime mortgage it is recommended you stay vigilant with regard to paying off as much debt as you can. Make 100% certain all payments are being made on time, so you don’t do anything to risk your opportunity to get a conventional loan moving forward.
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TIME TO FUND LOAN |
On average, 21 days for owner-occupied |
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LOAN SIZE |
$200,000 - $3 Million |
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LOAN TERM |
3-year to 30-year terms available |
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LIEN POSITION |
1st |
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LOAN TO VALUE (LTV) |
Up to 80% of current value of property |
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LOAN APPLICATION APPROVAL TIMELINE |
Owner-occupied takes 24 to 48 hours for preapproval |
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PROPERTY TYPES |
Single family and units, not exceeding four units |
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SUBPRIME INTEREST RATES & POINTS |
Please contact us for current rates and points |
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Subprime Loans Can Also Be Known As
Subprime loans can also be known as non-prime loans, non-prime mortgages, near-prime, or second-chance lending.
Years after the Subprime Mortgages Crisis of 2008, banks began extending subprime loans to a myriad of borrowers who previously could not qualify for a conventional mortgage. Borrowers were not required to have a significant down payment nor were they asked to verify their income in order to buy a property. These subprime mortgages were commonly referred to as NINJA loans (no income, no job, no assets.)
Borrowers gained a false sense of security with low payments and low-interest rate loans. Suddenly the payments and rates adjusted up. Once these subprime mortgages began adjusting to higher interest rates, a lot of borrowers were financially incapable of making the increased monthly payments. As a result, a large number of subprime borrowers could not afford to make payments. Then things got worse and ultimately a large number of people started defaulting on their loans. These foreclosed properties flooded the real estate market, popped the inflated housing bubble and helped start the Great Recession.
Borrower Protections were put in place.
Dodd-Frank, more formally known as The Dodd-Frank Wall Street Reform and Consumer Protection Act (known as was signed into law on July 21, 2010.) One of the biggest changes is a mandatory requirement for all lenders to verify every borrower’s income. Hands down, this specific regulation has been the most difficult for borrowers. Let’s face it, borrowers like looking poor until it’s time to look rich! But the good news is, oftentimes if the tax returns don’t show enough income the bank statements will. So, there is still a potential workaround for many people. The entire point of the income verification is to determine if the borrower has enough income to afford the loan. The debt to income ratios are calculated including the new proposed mortgage, insurance, and taxes. Depending on several factors the debt to income allowable ranges between 43% and 50%.
Recently Funded Subprime Mortgage Loans in California
Read what other borrowers have to say about working with our California subprime mortgage lenders
Taylor Facha
I don’t like to think of myself as someone who needs ‘handholding’, but in this case, Judy’s expertise and professionalism provided just that! Judy was always available and quick to respond, which was especially comforting considering this was my first ‘hard money’ loan and commercial investment. She was super upfront with the fees and I never felt pressured. It might sound crazy but the whole process was actually fun!
It truly couldn’t have been more straightforward and simple. If you’re in need of financing I highly recommend Judy and her company. I know I will be using her again for my next investment!
Ron Scott
Judy, was fantastic in getting my loan closed! I had a difficult situation with a number of extenuating circumstances, but she never gave up and persevered. And on top of everything else, we had to deal with COVID-19! If you have an easy situation she’ll get your loan closed in no time at all. But if you have a difficult situation, she’s the one to turn to!
Lawrence Cohen
Judy was awesome, professional, organized and very involved…
she walked us through the step by step on-line process. We opened
and closed our loan in just under 16 days. I think we could have done it
faster… if I wasn’t for my old school ways. Thanks Judy.
