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©
2002 Ruth E. Campbell. |
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Frequently Asked Questions Mortgages
- Q & A Q: What are the risks of "b" and "c" loans?
A: The major risk is the cost of the loan. Desperate
home buyers who are not selective when seeking an "A-,"
"B," "C" or "D" loan may find
themselves locked into long-term loans with outrageous fees
and interest rates. "Watch out how costly they are,"
said Jon Riccardi, a mortgage broker with MPR Financial in Albany,
Calif. "Some of the quotes are a little difficult to quote." Traditional lenders who offer conforming loans are extremely
competitive. They must offer desirable terms or lose their share
of the market. Meanwhile, hopeful home buyers who were rejected
often turn to mortgage brokers and specialized mortgage lending
businesses. Alternative lending sources not only offer a variety
of loan products but also are more willing to deal with higher
debt-to-income ratios, credit problems and other black marks
on an individual's record. In cases where negative information on a credit report may
be due to disappear in the next few years, or a borrower expects
their income to increase significantly, non-conforming loans
without excessive prepayment penalties can be excellent. The
borrower can obtain a conventional loan as soon as they qualify,
yet enjoy the benefits of home ownership and establish equity
in the meantime. Many home buyers engaged in this process look
at these less desirable loans as a penalty while others are
grateful for a second chance. Yet no one should be so anxious
that they sign for a loan with questionable terms. "The
goal of these loans is to pay them off quickly," Riccardi
said. "What I've seen is, people don't investigate these
loans enough and when they try to get out of it, realize what
they got into." Resource: "How to Shop For a Mortgage," a brochure
available from the Mortgage Bankers Association of America,
1125 15th St., N.W., Washington, DC 20005. |