 Dear Dr. Don,
I've heard about subprime loans. I am buying a new house and want to protect myself from all the bad things I've heard about them. How do I do this?
-- M.K. OK
 Dear
M.K.,
Subprime references the borrower's credit rating, so the easiest way to avoid getting a subprime loan is to have a prime credit rating.
Don't know your credit rating? You
can use Bankrate's FICO
score estimator to get a free estimate or
pay for your credit score from one or more of
the three main credit bureaus -- Equifax, Experian
or TransUnion. Bankrate has the contact
information for all three firms.
Some other things to avoid include no-equity loans, no-documentation loans or ninja loans. A ninja loan is slang in the mortgage industry for no-income/no job -- the mortgage applicant doesn't document his or her income or employment.
No-equity loans are generally structured
as 80/20 piggyback loans where the first mortgage
is for 80 percent of the home's purchase price
and a second mortgage finances the rest -- often
with an adjustable-rate home equity line of credit,
or HELOC.
Subprime lenders and borrowers counted
on rising home prices and low interest rates to
finesse traditional underwriting standards for
mortgage lending, allowing home buyers to stretch
in qualifying for financing. Seventeen rate increases
by the Federal Reserve in its targeted federal
funds rate and a stalled reality market later,
should we be surprised that some subprime loans
are unraveling?
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