On October 1st, new rules for sub-prime mortgages and bad credit home loans finally took effect--only about fifteen years overdue, but better late than never, right? Now, lenders making loans designated "high-priced," which covers most mortgages to people with bad credit, must:

  1. Determine your ability to repay the loan and must verify your income.
  2. Not saddle you with a prepayment penalty if the monthly payment can change during the first four years of the loan.
  3. Impound your home insurance and taxes in your monthly mortgage payment and keep these items paid.
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The downside? You have to prove that you earn sufficient income to repay your mortgage. The upside? Added oversight should give investors more confidence when buying subprime mortgages, increasing the availability of these loans for those who need them.

Who is the perfect candidate for a subprime loan today? Someone with plenty of income that can be verified, a sizable down payment, and lousy credit that can't be quickly cleaned up can benefit from today's subprime loans. With the real estate bargains available, it may be worth buying even if you have to take on a bad credit mortgage for a couple of years. Once your bad credit has been cleaned up, refinance to an FHA or conventional loan and get the benefit of a low rate in addition to a cheap price on your home.