What is a Sub-Prime lender?

A sub-prime mortgage lender works with people who cannot qualify for standard mortgages. Poor credit scores and bankruptcies are what keep most people from qualifying.

A sub-prime lender charges higher fees and interest rates, because the people he works with are considered more likely to default on their loans. He uses the same factors as a standard lender, but the mark-up is higher. The downside of working with a lender who only offers sub-prime loans is that you may qualify for a standard loan but never know it.

Some lenders offer both prime and sub-prime loans. The advantage of working with this type of lender is that you can try to qualify for a standard, prime loan first. Only if you're unable to qualify will the lender then suggest a sub-prime loan.

Other reasons someone may not qualify for a prime loan include the purpose of the loan, and the loan type. For example, someone who barely qualifies for a standard loan for a single-family home would probably have to use a sub-prime lender to purchase a 4-family home.