A nonconforming mortgage (also called a subprime loan) is sometimes the best option for folks with low incomes. In Passaic County, New Jersey, you can get a nonconforming mortgage. These loans are called nonconforming because they don't fit in with the general rules that govern traditional mortgages. For example, you would probably need a large down payment and good credit score to get a traditional mortgage, but not everyone falls into this category. If you have a low income, a nonconforming mortgage will be your best bet.

The downfall to this is that subprime mortgages have terms and rates that are more favorable to the bank. Subprime mortgages have come under fire lately as they have a higher than average default rate. Unfortunately, a few bad loans have given the rest of the market a bad reputation. The majority of subprime loans are Godsends to the people who take them out. This is because these loans offer more flexibility to the borrower; flexibility that conforming mortgages do not allow. With a subprime mortgage, the borrower does not have to have perfect credit in order to be approved.

Adjustable rate mortgages (ARM) are another option for those without perfect credit reports. These loans start out with a competitive rate, but the lender has the ability to change that rate depending upon where the market heads after the loan is taken out. Because this type of loan gives the bank the upper hand, the requirements for being approved for such a loan are much lower. Essentially, the bank is better able to protect themselves from swings in the housing market with these types of mortgages.

You should settle for an adjustable rate mortgage only under favorable circumstances. If you know that your financial situation will improve in the near future, an ARM can be a good choice since you will be able to refinance your mortgage and secure a new mortgage with a better, more stable, rate. This is a tough situation, however, because no one can tell the future. If you are unable to refinance, you will be stuck with a loan that has a high interest rate down the road. Because of this, if the ARM you are applying for has deferred interest, you will end up owing much more than you would without this factor. Also called negative amortization, this will create a large debt as your first several payments will not even cover the interest that is being added on to your mortgage. In these instances, defaulting upon a mortgage has an extremely high risk of occurring. If, for some reason, you end up in foreclosure, you may even end up owing more than your house is worth for quite a while.