 TITLE: What Is a Subprime Mortgage? CONTENT: How Do Subprime Mortgages Work?\n-------------------------------\nSubprime mortgages are home loans with pricing (i.e., interest rates and fees) tailored to relatively high-risk borrowers, also known as subprime borrowers. Experian defines subprime borrowers as those with a FICO® Score☉ of 580 to 669, but lenders define subprime according to their own criteria. Lenders in different housing markets around the country set minimum credit score requirements as they see fit and may define subprime using other creditworthiness criteria as well.\nThis underscores the importance of shopping around for mortgages and any other type of consumer credit. Because different lenders use different lending criteria, it's possible, depending on your credit scores, that you'll be slotted for a subprime mortgage by one lender but qualify for a conventional mortgage with another.\nThe pricing on subprime mortgages can vary by mortgage type (see below), but all subprime mortgages have some attributes in common:\n*   **High closing costs.** Lenders offset the risk of lending to borrowers with subpar credit by collecting high processing fees upfront. Origination fees on conventional mortgages typically fall between 0.5% and 1% of the total loan amount, but may be a percentage point higher on subprime loans.\n*   **High interest.** Rates on subprime mortgages are typically several percentage points higher than those on conventional mortgages—a difference that can cost you tens of thousands of dollars over the lifetime of the loan.\nWhen you apply for a mortgage, you do not need to specify whether you are seeking a subprime or prime loan. You simply submit an application and, based on your credit reports, credit scores and other financial information, the lender will offer you a loan with the terms it thinks you deserve. If you are deemed a subprime borrower, the lending terms will reflect that in higher interest rates and fees. (If you are seen as a less risky applicant, you'll likely receive better rates and fees, and if your credit is poorer than what your lender considers subprime, your application may be declined altogether.)\nAside from pricing, subprime mortgages work much the same as conventional mortgages available to borrowers with better credit: The mortgage issuer reviews your credit, income and, possibly, your savings or other assets and decides how much it is willing to lend you. The lender offers you a loan at a specified interest rate with specific fees, to be paid in monthly installments for a set repayment period, such as 30 years. If you fail to make your loan payments, the lender has the right to foreclose—take back the house—and sell it in an attempt to recoup your lost payments. END