We’ve all seen the “bad credit mortgages” or “bad credit no credit home loans” advertisements, while attractive and admirable in enabling people to realize the American Dream and own their own home, it’s not the most sound practice since the financial point of view. Recently, we’ve all seen the impact on our largest mortgage lending corporations, like Countrywide Financial and Citigroup, industry giants that once reported record profits are now struggling to stay afloat and others on the verge of filing for bankruptcy. So why the sudden consequences? How can a catalyst in our economy cause such an economic downturn?

The answer is subprime (less than ideal) home loans, when home loan lenders offer loans to unqualified consumers for the best interest rates on the market. This is often done due to poor credit history or financial hardship. Subprime loans also mean that the borrower will pay a higher interest rate than a qualifying prime candidate for a paper A loan. This is a very risky situation, you are asking someone to pay more for a loan than such maybe you can’t even manage financially. So why would a lender take this risk? The reason is that 25% of consumers fall into the high risk category, which is defined as having a credit score below 620. And while the risk is greater, the reward is also greater. Lenders may charge higher interest rates and add fees associated with lending to a high-risk applicant.

The result of these practices has led to record foreclosures and questions about how this could have happened and who is responsible. Some blame the government for the lack of oversight. Others accuse subprime lenders of predatory lending practices by offering loans they knew customers couldn’t meet their financial obligations. Problems have also been raised with investors investing in subprime lending corporations without due diligence in terms of checking their portfolios. And these are just a few examples of the accusations that this crisis is now causing.

So to stay alive now that subprime lenders are borrowing from the Federal Reserve, Citigroup borrowed $500,000,000 according to the Financial Times from the Federal Reserve on behalf of clients. Concerningly, corporations may borrow money to offset losses directly associated with risky lending practices. With the financial impact tied to the economy, it would be best to first see a clear plan in terms of changing those practices. If you or I made an investment in a risky stock option, we would be responsible for the losses associated with that risk.

That being said, as consumers it is important to understand how we can protect ourselves. First, don’t commit to a home loan that you can’t meet financially. Second, before purchasing a home loan, improve your credit, use a credit agency/counselor if necessary, but try to get your credit score above 680 to qualify for the best interest rates on the market. Third, work to lower your debt to credit ratio, get it below 35%, this is ideal for qualifying for a good loan. Below are the criteria to qualify for an A Paper loan, which means you’ll be a prime candidate for the best interest rates on the market for your home loan.

• In the United States, the borrower has a credit score of 680 or higher
• The borrower fully documents their income and assets.
• Borrower’s debt to income ratio does not exceed 35%
• Borrower retains 2 months of mortgage payments in reserve after closing
• The borrower injects at least 20% capital

This article on home loan lenders [http://www.equityloanfinder.com/] has been provided by www.equityloanfinder.com [http://www.equityloanfinder.com/]. It is intended to inform the consumer about the risks of subprime lending practices.