4 things about Subprime loans in 2023

Subprime loans are coming back more as lending is getting expensive.
2023 SubPrime Loans Video

subprime loans back like in 2007?

Let’s talk about 4 things about Subprime loans in 2023. It does feel like the subprime loans are coming back in May of 2023. I received a few new loan programs from local lenders. They call it “down payment assistance” or “closing cost assistance” programs. I’m learning about the programs to help some home buyers who might benefit from using these.

I couldn’t help comparing it to the subprime loans that were popular in the mid 2000’s before the market crash. So, I’ll explain my thought process here:

What is a subprime loan?

Subprime loans are higher risk loans given to borrowers with:

  • Below 620-640 according to FICO (Fair Isaac Corporation) credit score
  • Below 660 according to Federal Deposit Insurance Corp (FDIC)
  • The score standard varies depending on websites… which is a bit odd.
Are we seeing more subprime loans in 2023?
Photo by Andrea Piacquadio on Pexels.com

To make more loan programs available to borrowers who may not be qualified with traditional conventional loan qualifications.

  • Experienced a judgement, foreclosure, bankruptcy…
  • Carries higher rates and fees than prime loans
  • Higher rates to compensate for the lenders for taking greater risk of borrower’s defaulting
  • Interest-only, fixed and variable rate programs
  • Variable rate subprime loan payment can increase significantly over time
  • Aka, expensive loan to borrow for financially weak borrowers (poor credit scores and issues on their credit reports)

I personally used the subprime interest-only loan as a home buyer in 2005 when I bought my first house in Portland, Oregon. I didn’t have a job at the time and I still scratch my head how I was able to get a loan without a job. It was called, “Stated income” loan. You tell the lender how much you made the last two years, and they believe you without verifying the information. As far as I know, those stated loans don’t exist in 2023.

why new loans are similar to subprime loans?

Some of the details of these new programs that are coming up resembles the mid-2000’s subprime loans.

  • 101.5% LTV (Loan-To-Value Ratio) lending
  • Available to poor credit score borrowers: 620 credit score may be qualified for downpayment/closing cost assistance programs
  • Not requiring downpayment

If a borrower is financially strong, but somehow hasn’t saved the funds for downpayment and closing costs, programs like these can bridge the gap and allow the borrower to purchase a home sooner than later. However, 620 credit score indicates that the borrower may not be financially strong indirectly. So is this a smart choice for the borrowers?

What could go wrong?

Here are some scenarios where things could go wrong for borrowers:

  • Borrowing more than they can afford
  • Potential of dealing with rate hikes in the future if they get adjustable rate loans
  • If housing market crashes 10-20% after these programs being used too widely in the next 2-4 years
  • If variable subprime loan becomes unaffordable to borrowers and home price declines, the demand would slow down and we might see more foreclosures. Possibly no options to refinance or sell without paying out of pocket to make up the difference (aka short sale)

What you should do

If you are utilizing one of these down payment assistance and/or closing cost assistance loan programs:

  • Make sure to understand the fee and extra costs of the loans
  • How they might affect your monthly payment for now and in the future
  • Avoid the Variable Rate loans to protect against potential future rate hikes
  • Stay within your budget: buying a property you can truly afford and moving to lower priced cities

Make sure to understand your financial situation by educating yourself before jumping into a homeownership with programs like these. There’s no free lunch.

What AREAS Home Inspections Look at: 10+ Important Areas

When you have a home inspection, what is looked at, and where? As you know, home inspection is a must do when you are buying a property. If you are buying a complete fixer to level and build a brand-new house, maybe you can skip it. Other than that, it is a crucial step in the home buying process.

where & What DO home inspections COVER

From roof to foundation, it’s mostly a visual inspection (without opening up walls). Some inspectors use a behind-the-wall moisture meter, an infrared temperature gun.

Here’s a list of the items (not a complete list):

  • Structural: Roof, gutters, attic, ceiling, siding, foundation, crawlspace, driveway, deck, landscape drainage around house, chimney, windows, drywalls.
  • Mechanical: Water heater, garage door, garbage disposal, fireplace, most of the appliances.
  • Plumbing: Indoor water piping and drainage, faucets, sink, bathtub, shower, any visible leaks.
  • Electrical: Electrical outlets GFCI, electrical panel wiring, smoke alarms, CO2 alarms, lights, fans.
  • Heating, Ventilation and Air Conditioning (HVAC) – not as thorough as HVAC specialist can: Furnace, air duct, air conditioning unit, ductless system.
  • Fuel system: gas line, oil line.
  • Insulation/ventilation: Attic space, sub floor in crawlspace, ventilation pipes. vapor barriers, mold.
  • Pest/Insects: Ants, termite, other wood destroying insects, rats, birds, etc.
  • Any other environmental issues at surface level: landscaping around the house, sidewalks, driveway, vegetation, tree roots.

Additional Inspection Areas

You may need to hire separate inspection companies for the following:

Which home inspector to choose

You need to find and hire a licensed/bonded/experienced home inspector with great reviews and recommendations. As a 15-year+ realtor, I notice many repair items when I walk into a house, but a great inspector will find even more issues in any home. A great inspector can save you a lot of money and from any issues that can affect the resale value in the future as well.

If buyers want my recommendation of home inspectors, I may only recommend who I’ve worked with and who I’d hire for my own home purchase. They need to be knowledgeable, detail oriented, professional and willing to look deeper into any issues that may affect the living quality.

  • Check online reviews: Better Business Bureau® (https://www.bbb.org/), Google, Yelp, etc.
  • Ask your Realtor for recommendations. Good Realtors know good home inspectors.
  • Ask to see sample inspection report.
  • Check their pricing and what’s included.

home inspection FAQs

Q: When to do home inspection?

A: After your offer gets accepted by the seller and before the inspection contingency period ends, typically.

Q: Why do they need insurance and bond?

A: Most of the states regulate the home inspection license to standardize the qualification, knowledge level, state building codes and coverage of home inspection to make sure home inspections are done properly for buyers. Insurance/Bond portion is necessary in case of any damages that may occur during inspections, such as pipe bursting, toilet overflowing, personal injury, damage to personal property, etc.

Q: Can my father who has a general contractor’s license inspect?

A: Yes, he can, but I would not recommend it for many reasons. It may not be allowed by local real estate rules and not be considered as a professional home inspection. Also, too many potential issues related to liability, incident coverages and potentially losing leverage in repair negotiations.

Related content for home buyers:

Check out Oregon Home Buying Process and timeline here: https://shawn-realty.com/oregon-home-buying-process-and-timeline/

Things to know when buying a brand new home: https://shawn-realty.com/things-to-know-before-buying-a-new-home-reeds-crossing-hillsboro-oregon/

Realtor’s property of choice



Real Estate Question: Which one would you buy as your first property? Multiplex SF Townhome Condo

I’ve been selling real estate for the last 15 years and here’s my favorite residential real estate to invest in (in the order).

  1. Multiplex
  2. Single family home
  3. Townhome (least HOA fees and rules are better)

I’m a big fan of duplexes and triplexes. These tend to have the most optimal balance between price, return and appreciation. Real estate is local data specific, but you may apply this preference broadly in the U.S.

As I mentioned in the video, condos are better than renting, especially in long term.

If you’re in Oregon and want to chat about your situation, please fill out the form below.

Update! Beaverton OR 2023

Let’s take a quick look at the current real estate market in Beaverton, Oregon. Weekly real estate data which prepares the sellers and buyers with more up-to-date information than other delayed data. Altos Report.

With the yearly seasonality, we are seeing pending sales inching up, home buying demand is increasing. Price is somewhat flattening overall. The biggest difference makers are available tools for the buyers: rate buy-down, better negotiation leverage, loans with free refi in the future, more houses to choose from.

Beaverton Altos Report Feb 2023

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